Canadian Mortgage Guide

Canadian mortgage lenders fall into two main categories and namely, prime mortgage lenders and sub-prime mortgage lenders. The better your credit score is, the higher your chances to qualify for a preferential-rate mortgage loan with some of the prime mortgage lenders in the country. Conversely, if your credit score is not so good, you may still apply for a mortgage loan with some of the sub-prime lenders on the market. However, be aware that their interest rates are so high that you may soon be compelled to seek refinancing so as to break way from them. Canada’s top five banks (RBC, TD Bank, BMO, Scotiabank and CIBC) tend to offer some of the best mortgage rates in the country, although the mortgage offers of some of Canada’s credit unions are also worth considering.

Indeed, there is yet another category of mortgage lenders in Canada, the private mortgage lenders, which provide mortgage loans with short mortgage terms to finance various property investment projects. Learn about your responsibilities, your rights and how to pay off your mortgage faster.

Types of mortgage loans

Basically, there are three types of mortgage loans available in Canada – conventional, high ratio, and second mortgages. Of these, conventional mortgages usually come at the best possible rates, as they usually require a downpayment of up to 25 percent of the property’s price and therefore are relatively secure from the lender’s perspective. High ratio mortgages are a bit more expensive, as they require lower down payment and thus are more risky for the lender. Finally, second mortgages come at the highest interest rate, as they are almost always used to refinance an earlier mortgage and thus bear the highest risk for the lender. It is also worth mentioning that conventional mortgages usually come in two versions. These are fixed interest rate mortgages and floating interest rate mortgages. And while fixed rate mortgages offer the borrower certain protection against negative developments on the property market, floating interest mortgages allow borrowers to take advantage of possible drops in the average interest rates throughout the term of their mortgage.

Because of the risk to lenders, they resort to a mortgage guaranty or mortgage insurance. It represents an insurance policy compensating investors and lenders for potential losses due to default. Mortgage insurances may be private or public, which depends on the issuer.

Finally, the home buyers plan allows persons to withdraw up to $50,000 per couple or $25,000 per person from their RRSPs as to build or buy a qualifying home. The home buyers plan is another way to contribute to one’s savings as to buy a home. Withdrawals meeting all conditions should not be included in the income.

Mortgage calculators

Basically, a mortgage calculator is a web-based tool that helps you calculate the total amount of money you will have to pay during the term of your mortgage. The payment is computed on the basis of the price of your property, the period of your mortgage – ten, fifteen or twenty-five years, and the interest rate on your mortgage loan. For obvious reasons, mortgage calculators can only be used to calculate the total payable amount on mortgages with a fixed interest rate for the whole period of the mortgage contract. However, even without such a calculator, one can easily figure out that the longer the period of his or her mortgage, the more he or she will have to pay in interest. Calculate how much of a mortgage can you afford.

As another type, mortgage amortization calculators calculate the amount of the borrower’s monthly payments, going toward the interest and principal over the loan’s term. The calculator shows how much the borrower will save if he or she prepays some of the principal.