Mortgage Types You Should Know
Mortgages... maybe not the most exciting topic for some people, but it's advantageous to understand the basics. Here's a quick summary of a few common mortgage types you should know!
- Open and closed mortgages: If you anticipate making any lump sum payments on your mortgage, you might want to weigh your options between a closed or open mortgage. most traditional mortgages in Canada are considered to be closed, which have a predetermined interest rate over a predetermined amount of time. Because of their predictability, a closed mortgage might be of interest to a borrower who wants stability.
- Convertible mortgages: Convertible mortgages allow the holder to transition between a closed or open type during their term. With some lenders, it may also be possible to opt into a fixed rate mortgage if a variable rate was originally selected.Clients who anticipate selling their home and using the funds to make a substantial payment on their next property may also opt for a convertible mortgage type.
- Hybrid mortgages: With a hybrid mortgage, you have the ability to have multiple styles of mortgages under one umbrella, which can include a combination of fixed and variable rates, a line of credit, and other financial products. If a client isn’t comfortable with the risks of a fully variable rate mortgage in the event interest rates rise, but wants some of the stability offered with a fixed rate, a hybrid mortgage fuses the two together.
- Reverse mortgages: Exclusive to home owners aged 55 and older, a reverse mortgage is a loan connected to the value of the property and allows older Canadians to convert their home’s equity into a lump sum of cash or regular payments.Mortgage holders with a fixed income like a pension who want to use cash for renovations, living expenses, or to give as living inheritances to family are often interested in reverse mortgages.
If you’re looking for referrals on mortgage brokers, a REALTOR® is a great source for financial experts as well as the most up-to-date advice on your local housing market.