Types Of Mortgages

There are many different variations in the type of mortgage a borrower can acquire. The type of mortgage is matched to the borrower’s needs, goals, and risk assessment. The following is a list and description of the most common types of mortgages. Choosing a mortgage that is the best fit for a borrower can be difficult without professional advice. For this reason please call Harpreet Singh The Mortgage King at (416) 795-1919 for a free consultation.

At a glance the most common types of mortgages are:

Pre-Approved Mortgage
Home Purchase
Home Refinance
Equity Take-Out (ETO)
Blend And Extend
Mortgage Renewal
Switch/Transfer Mortgage
First, Second, Third Mortgage
Vendor Take-Back Mortgage (VTB)
Blanket Mortgage
Cross Collateral Mortgage
Collateral Mortgage
Reverse Mortgage
Cash Back Mortgage
6-Month Convertible Mortgage
All-Inclusive Mortgage
Bridge Financing

Details are as follows:

Pre-Approved Mortgage

By getting a pre-approval, you eliminate a lot of complications that can make a deal or offer fall apart last minute. Not only does a pre-approval give you more leverage and negotiation power when sending in an offer, but also it provides you with the confidence you need to succeed. Avoid the stress of worrying about whether or not you are going to get approved, after you have invested all that time in finding the perfect home. There’s never an obligation to go forward with the mortgage after receiving a pre-approval. Additionally, lenders guarantee and secure you their best rate usually for a 120 days. If rates increase, you get the guaranteed rate, and if rates decrease, you get the lower rate. Borrowers tend to save thousands by getting a pre-approval. Call Harpreet Singh The Mortgage King at (416) 795-1919 or click “Apply Now” at the top of the page to get started.
For a more detailed and thorough explanation on the many different ways to choose the correct pre-approval features please visit our Mortgage Features Page.

Home Purchase

The most common reason for acquiring a mortgage is to buy a new home. The potential buyer does not have the complete funds to purchase the property, so they seek a mortgage to cover the shortfall. There is a lot of flexibility and many different features when choosing a mortgage to purchase a home.
For a more detailed and thorough explanation on the many different ways to choose the correct home purchase mortgage features please visit our Mortgage Features Page.

Home Refinance

In home refinancing, the current mortgage is replaced with new and increased financing. When refinancing, the current value of the home and increased equity is used to judge how much you can borrow. A keynote to remember is that you can only borrow up to 80% of the market value of the home. Refinancing can happen at any time within the term, but to avoid penalty it is recommended to refinance at the maturity of the term. There are many reasons to refinance such as buying investments, a new car(s), investment property, a vacation, debt consolidation, finance education, renovations, or one of life’s largest milestones – such as a child’s wedding. Also, a borrower may wish to take advantage of a lower interest for increased savings.

Equity Take-Out (ETO)

An ETO is very similar to refinancing. The difference is that the property in question usually does not have an existing mortgage, or the borrower is changing lenders and increasing their existing mortgage. The distinguishing factor between a refinance and ETO is the change of lenders.

Blend And Extend

A blend and extend mortgage is when the borrower wishes to take advantage of a lower market interest rate without taking out any equity or refinancing. The lender will blend the current mortgage rate with the new mortgage rate and extend accordingly. Typically the rates are averaged, but lenders may have their own specific calculations.

Mortgage Renewal

A mortgage renewal is the replacement of the current mortgage with a new mortgage when the term has matured. Borrowers have the option of paying the remaining balance in full, or renewing with the same lender. Most borrowers choose to renew, rather than paying in full.

Switch/Transfer Mortgage

A switch/transfer mortgage occurs when the term is up for maturity, and the borrower chooses to switch lenders. This may be due to the fact that an alternative lender ia offering a more competitive rate to attract business.

First, Second, Third Mortgage

The first, second, or third mortgage refers to the time and order that it was registered against the property. It also refers to the claim position that the mortgage takes in the event of default. For this reason, as more mortgages are registered, the subsequent interest rates tend to rise as the risk increases for the lender. Typically they are sought in the event of a borrower needing funds for a short period of time and not wanting to break the current term on the first mortgage due to a high penalty. There is no limit to the amount of mortgages that can be registered against a property.

Vendor Take-Back Mortgage (VTB)

A vendor take back mortgage is one where the party selling the property agrees to provide additional financing and hold a mortgage themselves. VTBs are typical in cases where the potential buyer may have a first mortgage in place, but still not enough to purchase the property. The gap could be filled by the seller providing a VTB.

Blanket Mortgage

A blanket mortgage is a single mortgage registered against two or more separate properties. This provides the lender the opportunity to seek action against both properties in the event of default. Blanket mortgages are typically for second/vacation properties and provide the borrower with ease of only making one collective monthly payment.

Cross Collateral Mortgage

A cross collateral mortgage is two separate mortgages registered against two separate properties, but cross-referenced at registration. This gives the lender an opportunity to seek action against both properties in the event of one mortgage defaulting.

Collateral Mortgage

A collateral mortgage is one that is backed by additional security such as vehicles, business equipment, land, or any additional assets. It is sought in atypical cases, such as when the value of the property is not sufficient enough for the required mortgage amount.

Reverse Mortgage

A reverse mortgage or reverse annuity mortgage is available to homeowners who have significant equity in their homes. The equity is gradually drawn out by a series of payments or a lump sum by the homeowner. Typically, a reverse mortgage is used by seniors to pay for medical expenses or retirement home costs. After death, the debt is then settled by the heirs of the Estate, who typically sell the property.

Cash Back Mortgage

A cash back mortgage is when the lender gives you back a cash amount on closing equal to a certain percentage (up to 5%) of the total mortgage value. This program is often appealing to first time homebuyers as the cash back amount can be used to cover closing costs, appliances, furniture, or small renovations. Cash back mortgages tend to have higher interest rates and terms that are typically 5 years in length.

6-Month Convertible Mortgage

This is a mortgage that is available for a 6-month period. Typically it is sought when the borrower feels that rates are on their way down. At the end of the 6 months, the borrower will take advantage and lock-in the new and lower market interest rate. The borrower also has the option to convert the mortgage into a fixed term of 1-10 years anytime within the 6-month term.

All-Inclusive Mortgage (AIM)

An all-inclusive mortgage is a type of financing that features all payments for closing items. It features lawyer fees, title transfer fees, the title insurance premium, CMHC application fee, and mortgage registration fees. Sometimes it features 1% cash back, which can be used to cover land transfer tax. Most lenders vary with AIM terms, but typically the minimum is 5 years.

Bridge Financing

Bridge financing or a bridge loan is financing that is intended for a short period of time. Typically, it is needed to cover a time gap between two property sales. An example is when a borrower has two firm sales (one purchase, one sale) and the closings do not match. This will ultimately mean that the proceed of funds will be delayed. A bridge loan can be up to 60 days in length, and tends to be 2-3% more than the prime rate.
 

For a more in-depth and professional review of your individual and personalized situation please give Harpreet Singh The Mortgage King a call at (416) 795-1919.

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