Five Types Of Mortgage Agreement

A mortgage, like most legal transactions, can be extremely intricate. It is critical to know what you are signing up for and whether your unique contract is suitable for you. Before beginning the mortgage process, it is important to familiarize yourself with different types of mortgages in Canada, understand your payment and pre-payment plan options, and consider other add-ons such as insurance, and more.

Here are the 5 Types of Mortgage Agreements below -

1. Open Mortgages

The two main types of mortgage agreements in Canada are open agreements and closed agreements. Under an open mortgage contract, the borrower can pay off as much of their debt as they want, when they want. There are no prepayment penalties associated with an open mortgage, however, borrowers often must pay inflated interest rates in exchange for this perk. You may want to consider an open mortgage if you have a lot of excess capital or are planning to sell your home soon.

2. Closed Mortgages

Under a closed mortgage, your payment schedule will follow a set term and timeline. Sometimes, the borrower will be allowed to make a few prepayments without penalty, however the full term of the mortgage will not change. A closed mortgage will be accompanied by stricter conditions but will also usually charge a lower interest rate in return.You may want to consider a closed mortgage if you plan to keep your home for the full term of the mortgage. Some closed mortgages do allow for a full or partial repayment of the principal upon bona fide sale of the home, and some are portable to new home purchases.

3. Portable Mortgage

If you already own a home and are looking to move to a new one, you may have the option to port your mortgage. Porting your mortgage allows you to transfer part or all your current mortgage to a new property while keeping the same interest rate and contract terms. The porting process might allow you to avoid paying prepayment penalties for breaking your mortgage contract before your term is up. You may want to consider a portable mortgage if your mortgage lender allows for it, and you are satisfied with your that lender’s mortgage contract terms.

4. Convertible Mortgages

A convertible mortgage is an agreement made at the beginning of a term that allows homeowners to change the type of mortgage they hold during its term. If a homeowner wants to start with an open mortgage and then lock into a closed mortgage, a convertible mortgage is the right choice.It offers lower rates than an open mortgage and has the option of switching to a closed term. A conversion to a fixed rate mortgage can also be done by most lenders when the borrower has originally selected a variable rate mortgage and now wishes to move to a fixed rate before the end of the term.

5. Hybrid Mortgage

A hybrid mortgage is a term used when there is more than one type of mortgage contained in a single mortgage registration. The registration could include a fixed rate portion, a variable rate portion, a line of credit portion, or any combination of these. Each lender will have their own unique name for this type of mortgage allowing anywhere from 2 to 100 different products contained in the registration of the mortgage. This product is often suggested for the savvy borrower who will use this as part of their overall financial plan.

Working With Professionals

One of the best ways to ensure you do not get stuck in an unfavorable mortgage contract is to work with a professional mortgage broker. Rajan Saggi has helped many buyers in BC, to connect to the perfect lenders for their unique needs. Rajan can help you explore your options, decide on the best features for your mortgage agreement, negotiate your mortgage terms with the lenders, renew your mortgage, refinance your home, and so much more. Contact Rajan Saggi today to schedule your free mortgage consulation.

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