Types of Mortgages
You May Qualify For a Home-Buyer's loan
Whether you are a FIRST TIME HOME-BUYER or not. When you purchase a property (i.e. personal residence, vacation property, investment property, etc.), and do not have ALL of the cash required for your purchase. You will have to borrow the funds that you lack in order to complete the purchase. This mortgage is called a first mortgage, because it is registered in the first place on the title of the property. You may qualify for a home-buyer's loan with as little as 5% down payment.
Fixed Mortgage (open/closed)
A fixed rate mortgage, is a type of mortgage where you have a fixed interest rate and therefore a "fixed" payment amount. This means, that your interest rate is not subject to change, and the rate at which you pay back your loan is always the same. There are some key advantages to having a fixed rate when you consider the nature of inflation.
Loan Will Have a Set Term
A Fixed mortgage product will also be "open" or "closed". In either case, your loan will have a set term. It will likely be between six months and five years. If your term is Open then you can pay out the amount in full at anytime without penalty or further interest charges. If however, your term is Closed then you will be subject to an early pay out penalty or interest differential charge.
Interest Rate Is Subject To Change
An adjustable rate mortgage (ARM), or variable rate mortgage, is a mortgage where the interest rate is subject to change. Most of these products, are based on a formula using the prime interest rate less a factor.
These types of products have been very popular lately, as prime interest has remained relatively low. There is also an option with this type of mortgage to lock in to a 3 year or 5 year "fixed" term at any time.
Assume your property has an appraised value of $150,000, and there is a First Mortgage of $100,000 registered against the property. The equity in your property is $50,000. If you were to arrange a secured Second Mortgage, the Second Mortgage would be registered behind the existing First Mortgage and dependent upon the lender's Second Mortgage loan-to-value ratio requirement. This is a requirement that allocates the funds received be drawn against the equity in your property.
Assume the lender is willing to provide you with a Second Mortgage, so long as the loan-to-value ratio (First and Second Mortgages) does not exceed 85%. From the example above, that would mean you would be eligible for a Second Mortgage amount of $27,500.
Private MortgagesThese types of mortgage's are for those that dont qualify at major lending institutions.
Rates Are Higher Than...
Considering that Second Mortgage rates are higher than First Mortgage rates, the Second Mortgage would have to be registered and there will be two payments to be made. Would a Second Mortgage be your best choice versus. arranging a new First Mortgage? Maybe yes. Maybe no. To discuss what is best for you, contact us today.