In this series of articles, we will be describing three different types of mortgages that can be taken out in Canada in order to purchase a loan. The first mortgage type, and the most popular mortgage Canada and the U.S.A. on the whole has to offer, is the fixed rate mortgage. This is true of residential and commercial mortgages.
Fixed rate mortgages are titled so because the amount of money paid per month on your Fenelon Falls cottage or Cabbagetown home will not change. The base rate is calculated according to how long the lender and buyer agree the mortgage term should be. Interest is then calculated at one level for the entire period, and added to the base amount. These mortgages are available from both domestic and commercial mortgage lenders.
The reason fixed rate is the most popular form of mortgage Canada and the other countries have to offer is that it allows home buyers to take some of the risk out of their loan. Many buyers today are still somewhat scared of skyrocketing interest prices, a phenomenon which happened in the 1980s. The rapid rise in rates left many people unable to pay their monthly terms. Fixed rate mortgages provide some security so that people know what they will be paying over a certain amount of time.
While fixed rate mortgages offer security for the home buyer, those who have a real estate career will probably tell you that the banks benefit from the terms as well. In fact, in today's economic climate in Canada, banks are the main beneficiaries of the positive aspects of fixed rate mortgage terms.
It is important to note that fixed rate mortgages will probably increase in popularity in North America because current housing prices are too high for most people to buy for terms less than 35 years. In the United States, basic real estate training helps realtors understand that fixed rate mortgages are available for the entire loan term. However, in Canada, terms typically run only five or ten years.
Those looking for some security will feel content with the fixed rate mortgage. On the other hand, if you are looking for a chance at paying less interest, another type of mortgage might be for you. You should look into all of the options before choosing a mortgage for your new cottage in the Kawarthas perhaps. We will take a look at those in subsequent articles.