Different mortgage types are featured on the financial market in Canada. Home buyers can choose between an interest only mortgage, a repayment mortgage, or an endowment mortgage. Your mortgage broker will recommend one of these types depending on your preferences and requirements. For instance, if you prefer to pay back a little at a time, your mortgage broker will advise on choosing a repayment mortgage. If you want to pay the whole amount at the mortgage's term, an interest only or endowment mortgage may be a better option.
With repayment mortgages, bank clients are paying the principal, together with the interest on the underlying debt. At the end of the mortgage's term, the debt is cleared. This type of mortgage is regarded as the least risky and easy to understand in terms of repayment. The continuous repayment mortgage is one variation of the standard repayment mortgage, with continuous annuity being used when repaying the outstanding amount.
With interest only mortgages, the mortgage holder pays off only the interest over the term of the mortgage. The capital is due at the end of the term. This type of mortgage has become increasingly popular among first-time buyers and buy-to-let investors. The interest only mortgage costs less than the repayment mortgage. While interest only mortgages are popular in the US and UK, they are not common in Canada. With regular amortizing mortgages, holders are entitled to one or a couple of interest only payments. Because of these, Canadian mortgage holders do not really benefit from this type of mortgage. There is one obvious downside to interest only mortgages - people enjoy the fact that they will be paying back the interest only for some time and do not give enough thought to how they will be repaying the principal amount.
As an alternative option, your broker may advise you on choosing an endowment policy. With this type of mortgage, holders get life insurance and save money. The savings can go toward paying back the mortgage at its term, which can be in the range 20 - 25 years. The term endowment mortgage is mostly used in the United Kingdom. It should not be considered a legal term.
Poor credit mortgage is, intended for applicants with poor credit rating. Creditors have started advertising this mortgage type to sub-prime borrowers over the last years. These mortgages are usually offered at a higher rate to borrowers who had fallen into arrears on their mortgages and those who declared bankruptcy. Bad credit mortgages are a good option for applicants who have had debt problems in the past.
Those who want to calculate their mortgage payments can use a mortgage calculator, and different types are available online. You have to simply type the mortgage amount required, the interest rate, and the repayment period in years. With some mortgage calculators, you can also include your credit profile (e.g. excellent, good, fair, or poor), as well as the loan purpose - new purchase or refinancing. Get the facts about fixed rate mortgage by checking out this calculator for mortgages.
