Mortgages and its types

Mortgage is a debt instrument which is secured by the collateral of specified real estate property; the borrower of the loan is supposed to pay back the loan with a predetermined set of payments.

Through mortgages individuals and businesses can make large purchases without having to pay for them at one. Residential mortgages involve a home buyer to have the bank claim on the house, whilst the buyer pays for the mortgage. If the buyer is unable to do so, he might be charged with penalties.

A mortgage loan is basically a loan that is secured by real property, for instance your house. This is usually done through the mortgage note which provides evidence that the loan and the secured property actually exist. Explained below are some forms of mortgages that can be commonly found:

Pre- Approved Mortgages: A pre-approved is basically lets you know before you sign the deal about how much you can actually afford to borrow; based on your pay structure and the wealth you have accumulated. It generally has the longest rate guarantee period that can be extended up to 120 days. For instance, if the interest rates rise, there would be no effect on the rate of a pre-approved mortgage.

Conventional Mortgages: This type of mortgage does not usually have insurance by default and a conventional mortgage loan does not exceed 75% of the purchase price or appraised value of the home, whichever is less.

High-Ratio Mortgage – CMHC Insured / GE Capital Insured: A high-ratio mortgage is usually above 80% and up to 95% of the purchase price or appraised value of the property. These mortgages are insured against loss by CMHC or GE capital, which happens to be a private insurance company.

Fixed Mortgages entail the first debt registered against a property, i.e. a first charge on the property. The first lender has first right on the outstanding interest costs and all the other costs incurred during the process. The second mortgage is a debt after the first mortgage has been registered. Generally the interest charged on second mortgages is higher than the first one.

Open Mortgages allow you to repay the mortgage at any time without a penalty. They are usually available for short term periods of time, for instance 6months to 1 year. These are best for situations which involve selling of the property. Their interest rate is only a little bit higher than that of closed mortgages.

Closed mortgages offer the security of fixed payments for periods of 6 months to 10 years. These sorts of mortgages generally have penalties for late payments.

Then there are the fixed-term mortgages, where the interest rates and other conditions remain constant throughout the term. Some forms of mortgages include, Adjustable Rate Mortgage (A.R.M), Secured Lines of Credit, Equity Mortgages, Multiple Term Mortgages, All-Inclusive- Mortgage (A.I.M) and bridge financing.

You need to check the pros and cons of all the different kinds of mortgages before deciding upon which one of those fits your situation best. Keep the interest rates and other conditions in mind whilst choosing the type.


By: Nancy Suzan 

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