With the current economic hardships, purchasing a new home can be stressful or second to impossible when you don’t have the cash to pay off the property’s value at once. That’s where mortgages chip in to assist.
However, there are different mortgages available in the Canadian market and its imperative that a homebuyer understands them, to get the most out of the options.
Whether you are new to the world of owning a property or not, having the right information on mortgages you can access can help you identify the programs that better coincide with your needs.
Mortgage Types that Work Well in Canada
- First Mortgage
The term “first mortgage” simply refers to the loan that is, or will be registered first on the home, with the county or city. It is sometimes called the first charge on the property. Before getting an approval for the mortgage, the lending institution would want to assess whether an individual is able to manage the debt based on his or her financial strength and credit score history.
This type of mortgage helps aspiring home buyers to meet their life-goals of owning a home after a fixed period of paying for the property, but at a slightly higher price. Repaying your mortgage can be spread to a period of 25 years.
- Second Mortgage
With this mortgage option, a borrower gets another loan atop the property that is already attached to an existing mortgage. However, the home in question must have accumulated some equity for it to be legible for a second mortgage. Equity is the value that the property has appreciated, based on the current market valuation of the asset.
The second mortgage is not conditional with regard to how the homeowner spends the cash they get. They can decide to buy new assets with the money, improve the existing property or just educate the children with it.
- Private Mortgage
This mortgage type involves taking a loan from a person you most likely have some attachment to, a family member or someone you know – but can also be from a total stranger. Private mortgage lenders are not like traditional mortgage lenders. No heavy documentation or long processing time is required for this mortgage type, just a an asset that can be used as collateral.
Whether you want to borrow the cash to buy a home or for other reasons, private loans are meant to benefit both parties involved in the deal without taking too much financial risk. That might translate to lower/nil interests or lower repayment amount as terms. Nonetheless, there needs to be some written agreement between the involved parties.
Home equity line of credit (HELOC,) is a new strategy for paying off a mortgage. In itself, it doesn’t stand exactly like a mortgage. But it promises a way out to help borrowers pay off their mortgage loan faster. Well, the strategy is a bit complicated, but it generally capitalizes on the equity amount your home has accrued.
To be on the good side with this option, one must have a monthly income that exceeds their expense, what’s called a positive cash flow; a credit card that gives you “free cash for 45 days or a closer grace period; and among other requirement, months where you surrender your entire paycheck to service the mortgage.