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Feb
04
Mortgages Demystified - Part 2

Mortgages Demystified - Part 2

Mortgages Demystified: Types of Mortgages
by Troy Champ

To those of you that read my previous blog entry - welcome back. Last week I wrote about the mortgage qualifying process. Today I will cover the different types of mortgages. Mortgage terms, repayment options, mortgage insurance requirements and down payment requirements will follow in future week's postings.

Types of Mortgages

First, there are basically two types of mortgages: conventional and high ratio. A mortgage that does not exceed 80% of the purchase price of the homes is considered a conventional mortgage. Mortgages that exceed this limit must be insured against default, and are referred to as high-ratio mortgages.

Then you can choose either a fixed or variable interest rate. A variable rate mortgage is just like it sounds, the mortgage interest rate varies with the bank rate over the term of the mortgage. A fixed rate mortgage has a pre-determined fixed rate of interest over the term of the mortgage.

The type of mortgage you choose depends on how comfortable you are with interest rate volatility and the current interest rate spread between the fixed and variable rates. Variable rate mortgages have been very popular with recent very low mortgage rates, however with the threat of increasing rates - a fixed rate may be a better choice. I recommend that you discuss which option is best for you, with your mortgage advisor.

In addition, you can choose an open or closed mortgage. These are available with both fixed rate and variable rate mortgages. A closed mortgage is a mortgage agreement that cannot be prepaid, re-negotiated or re-financed before maturity, except according to its terms. An open mortgage is a mortgage, which can be prepaid at any time, without interest penalty or additional fees but mortgage interest rates are generally much higher than those of a closed mortgage.

A closed mortgage is most commonly chosen for a longer-term mortgage. If you anticipate being able to pay out your mortgage within a short term such as a year, say a rich uncle dies and leaves you a pot of money or you think you will win the lottery, then an open mortgage makes sense.

The next blog will be about: Mortgage terms, repayment options and mortgage insurance requirements Please feel free to call me or email me if you have any questions.

Troy Champ has 15 years experience as a mortgage advisor and is currently with Jencor Mortgage. Jencor Mortgage is providing preferred mortgages for purchasers of the ZEN in Auburn Bay townhomes.

He can be reached at:

Troy Champ
Mortgage Advisor
Jencor Mortgage
Cell: 403-615-9414
Email: troy@jencormortgage.com

Blog Topics: Auburn Bay, Calgary Townhomes, Homebuying Tips, ZEN Condos