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Explore our resources for valuable mortgage information and tools. Find guides, calculators, articles, and expert advice on topics like first-time homebuyer tips and refinancing strategies. MKR Mortgage Solutions is here to help you navigate the mortgage process confidently. Start your homeownership journey today.
High-Ratio Mortgages
High-ratio mortgages are designed for homebuyers with a down payment of less than 20% of the purchase price. This type of mortgage has a loan-to-value (LTV) ratio of more than 80% of the property’s value and is often referred to as an insured or default-insured mortgage.
A high-ratio mortgage cannot exceed a purchase price of $1 million and requires mortgage default insurance. This insurance protects the lender by reducing their risk if you default on your mortgage payments. In Canada, there are three mortgage loan insurance providers: the Canada Mortgage and Housing Corporation (CMHC), a crown corporation, and private insurers Canada Guaranty and Sagen.
First-time homebuyers can benefit from high-ratio mortgages due to the smaller down payment requirement, which helps overcome the significant barriers of down payments and closing costs. Additionally, interest rates on high-ratio mortgages are typically lower because the insurance reduces the lender’s risk. Insurance premiums are added to the total mortgage amount or can be paid in cash by borrowers.
At MKR Mortgage Solutions, we specialize in high-ratio mortgages and are dedicated to helping you navigate this option to make homeownership more accessible. Our expert team will guide you through the process, ensuring you secure the best terms and rates for your financial situation. Contact us today to learn more about how a high-ratio mortgage can benefit you.
Conventional Mortgages
Conventional mortgages are for borrowers who can afford a down payment of 20% or more or are purchasing a home valued at $1 million or more. These mortgages, also known as uninsured mortgages, do not require mortgage default insurance since the down payment equity is sufficient to protect the lender.
Homebuyers who can afford a 20% down payment benefit by avoiding the additional cost of default insurance. The savings from not including insurance premiums in your total mortgage amount can be substantial over the life of the mortgage. Conventional mortgages are also advantageous in high-cost areas, as there is no $1 million cap on the purchase price.
Additionally, a 20% down payment provides more equity in your home from the start, potentially lowering mortgage payments and interest costs over the life of the loan. However, conventional mortgages often have higher interest rates than high-ratio mortgages, which could offset some savings.
Fixed-Rate Mortgages
Fixed-rate mortgages have a principal and interest amount that remain constant throughout the mortgage term, providing stability and predictability with payments that won’t change if interest rates fluctuate.
These mortgages are ideal for homeowners with less risk tolerance, those who prefer stable payments, or those on a set budget. They are also beneficial if interest rates are expected to rise, as you’ll be locked into a fixed rate, protecting you from increases.
However, fixed-rate mortgages generally have higher interest rates than variable-rate mortgages. Breaking a fixed-rate mortgage before the term ends can result in high penalties, calculated based on the interest rate differential (IRD) or three months of interest, whichever is higher.
Prepayment penalties typically apply to all fixed-rate mortgages and can be substantial if the interest rate at the time of early payout is lower than the mortgage’s contract rate. This ensures the lender compensates for the lost interest revenue.
Insurable Mortgages
Insurable mortgages share criteria with insured mortgages but require a down payment of 20% or more. Depending on the lender, the borrower or lender may cover the default insurance.
Lenders insure these mortgages for lower rates, known as low-ratio or portfolio insurance. Borrowers may be responsible for the insurance premium. Insured mortgages offer interest rates nearly as low as high-ratio mortgages. To qualify as low-ratio, mortgages must have an amortization period of 25 years or less.
Variable-Rate Mortgages
Variable-rate mortgages have interest rates that fluctuate based on changes to the Bank of Canada policy rate. There are two main types: adjustable-rate mortgages (ARMs) and variable-rate mortgages (VRMs).
Adjustable-Rate Mortgages (ARMs) adjust payments up or down based on the lender’s prime rate changes. While the principal portion remains fixed, the interest portion fluctuates with prime rate adjustments. Higher interest rates increase mortgage payments, and lower rates decrease them.
Variable-Rate Mortgages (VRMs) maintain fixed payments throughout the term despite prime rate changes. However, the principal and interest portions adjust based on prime rate fluctuations. Higher rates increase interest payments, reducing the principal portion, and vice versa.
VRMs risk triggering when payments solely cover interest, leading to negative amortization. Homeowners comfortable with budget adjustments based on interest rate changes benefit from lower initial mortgage payments compared to fixed-rate mortgages.
Both variable types typically offer lower interest rates than fixed-rate mortgages, potentially reducing long-term interest costs. Early termination penalties are also usually lower, typically limited to three months of interest.
Open, Closed, and Convertible Mortgages
Open, closed, and convertible mortgages offer varying degrees of flexibility to customize your mortgage strategy and achieve your financial goals.
Open Mortgages allow extra payments or full mortgage payoff before the term ends without penalty. They are ideal if you expect windfalls like inheritances or bonuses that you plan to use towards your mortgage, or if you intend to pay off your mortgage early. However, they typically carry higher interest rates, making them costly if you don’t utilize this flexibility.
Closed Mortgages limit prepayments each year but offer lower interest rates than open mortgages. This option suits homeowners planning to stay for the entire term or who don’t anticipate having extra funds beyond annual limits for prepayment. Breaking or paying off the mortgage early can incur significant penalties.
Convertible Mortgages provide short-term flexibility (often 6 months) with the option to switch to a longer term at any time. They are beneficial if unsure about long-term plans or anticipate decreasing interest rates. Convertible mortgages have prepayment restrictions like closed mortgages but offer lower interest rates than open mortgages, appealing to those needing short-term flexibility without higher borrowing costs.
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