With the tremendous growth in the housing market over the past several years, mortgage providers have developed new products and services to meet the varied needs of borrowers. In a rising housing price market, more mortgage products help Canadians buy their homes sooner. While not all products suit all borrowers, the variety provides for more options to enter the housing market.
In October 2017, the Canadian Government announced changes effective January 1, 2018, which will require lenders to confirm that all borrowers (insured and un-insured) can afford their mortgage if rates were to rise , by requiring the borrower to qualify at either the Bank of Canada five year fixed posted mortgage rate or 2% above their actual negotiated rate, which ever is higher.
The typical amortization period (ie. the actual length of time required to pay off your mortgage) was historically 25 years. However longer amortization periods of up to 40 years are now available under certain conditions. The benefit of the longer amortization periods is that you are repaying less of your principal each month and therefore your monthly payments are less than they would be under a standard 25 year mortgage.
The minimum downpayment required to purchase a home in Canada is currently five percent of the purchase price. If the downpayment is less than twenty percent the purchaser must also obtain mortgage insurance. The premium for the mortgage insurance (calculated as an annual percentage of the loan) can also be added to the principal of the mortgage and thus amortized over the life of the loan.
Mortgage interest rates are at historic lows. Mortgage interest rates can be fixed or variable, and the loan terms range from 6 months to 10 years. Mortgage loans can also be open (which allows for prepayment at anytime) or closed (no payment or limited prepayment privilages).
With a variable rate mortgage, the interest rate is normally tied to the Prime Rate, and it will reset with your payment amount each time the Prime Rate and can be lower than typical fixed rates, and the mortgage can usually be converted to a fixed rate mortgage at anytime without any penalty.