Closed vs. Open Mortgage

In general a closed mortgage offers a lower rate than an open mortgage of the same term. However, the open mortgage permits you the flexibility of paying off any amount, whenever you wish without any penalty.

If it’s likely you’ll make only regular monthly payments and possibly limited prepayments, the closed mortgage is usually preferable.

Fixed vs. Variable Interest Rate

You can fix your principal and interest payments for a term of your choice ranging from 6 months to 10 years allowing you to budget precisely for the period of time selected. However you may prefer an interest rate that is always current, one that will rise or fall with market trends. The choice is between the security of the fixed rate and the potential savings or added expenses of the variable rate.

Short vs. Long Term

Shorter term mortgages are appropriate if you believe interest rates will drop substantially by the time you renew.

Long term mortgages are suitable if you feel current interest rates are reasonable and would like the security of locking in; so you can budget for the future with a fixed payment.

Convertible Mortgage

This type of mortgage fixes the rate for six moths or one year with the provision than anytime during that period you may lock into a longer term with little at no cost. This may be the appropriate mortgage if rates are clearly on a downward trend.

Conventional vs. High Ratio

A conventional mortgage is defined as one that does not require default insurance and is available up to a maximum of 75% of the purchase price or appraised value whicheber the lesser.

High ratio mortgages are default insured by Canada Mortgage and Housing Corporation or Mortgage Insurance Corporation of Canada. This insurance permits you to obtain a mortgage with as little as 10% down payment thereby financing 90% of the purchase price or appraised value whichever the lesser (lower maximum percentages apply to property values over $180,000). An insurance premium of up to 2.5% of the mortgage amount is chargeable and may be added to the mortgage balance.

CMHC First Home Loan Insurance

C.M.H.C. first home loan insurance is for those who have not owned a principal residence during the past five years and who intend to occupy their current purcahse as their principal residence.

It is a two year initiative subject to review as to continuation in February 1994. The plan permits purchase of a home with as little as 5% down payment. An insurance premium of up to 2.5% of the mortgage is chargeable and may be added to the mortgage.

In Richmond, November’s average price was $357,100, down $76,000 from a year ago. The median price was $318,000, a $43,000 decline. In Vancouver east, last month’s average price was $320,300, a drop of $12,200, while the median was $289,900, down $5,100 from a year ago. If there is more than one buyer, only one has to be a first-time buyer as defined above. The minimum term is 5 year and the housing payment may be up to 35% of gross family income and total payments (including housing payment) may be up to 42% of gross family income.