2. Insured or High-Ratio Mortgage
With a high-ratio mortgage the purchaser has less than a 25% down payment. These mortgages are often referred to as NHA mortgages because they are granted under the provisions of the National Housing Act. You can borrow up to 95% of either the purchase price or the appraised value of the property (whichever is less) but are required by law to insure the mortgage and pay a one-time insurance premium based on the total value of the mortgage. For insurance you can either use the Canada Mortgage and Housing Corporation (CMHC) or a government approved private insurer.

Mortgage loan insurance premiums range from 1.2

5% to 3.75%, depending upon the size of the down payment. The general rule of thumb for high-ratio

mortgage premiums is...

If the mortgage is 75% to 80% of the purchase price: 1.25% premium due on the mortgage value.
If the mortgage is 80% to 85% of the purchase price: 2.00% premium due on the mortgage value.
If the mortgage is 85% to 90% of the purchase price: 2.50% premium due on the mortgage value.
If the mortgage is 90% to 95% of the purchase price: 3.75% premium due on the mortgage value.

This insurance premium may be either paid up front or added to the mortgage. If added to the mortgage, a $150,000 mortgage with a 5% down payment would translate into a $155,625 mortgage ($150,000 mortgage + 3.75% insurance premium). The extra insurance premium increases the mortgage payment by about $35 per month at a 7% interest rate.

There are additional criteria to be considered when applying for a high-ratio mortgage such as minimum loan terms allowed, maximum amortization periods, allowable purchasers' debt levels, source of the down-payment if less than 10%, use of the property (single family/duplex/investment), plus many more. There is even a maximum purchase price allowed with a 5% down payment. It can range from $125,000 to $250,000 and depends on which Canadian City you are purchasing in. Feel free to ask your REALTOR or mortgage lender for a more in-depth explanation, or visit the large and detailed Canada Mortgage and Housing Corporation site.

There is a 3rd type of mortgage: a Pre-Approved mortgage.
A pre-approved mortgage is not actually a mortgage at all. It is the preliminary approval by the lender of the borrower's application for a mortgage. It usually sets out the maximum mortgage amount allowed, with an interest rate guarantee for 30 to 60 days. This approval is subject to a satisfactory appraisal of the subject property and a credit review of the buyer so it is highly advisable to make any offer to purchase conditional upon financing.

Common types of mortgages:

Open Mortgage (6 month to 1 year terms are most common)
Allows borrowers to repay all or part of the principle amount of their mortgage at any time without penalty. You usually have to pay a higher interest rate for this type of mortgage since it offers greater prepayment flexibility. This flexibility makes open mortgages ideal for homeowners who plan to sell in the near future or who want to wait for rates to drop before locking into a longer-term mortgage. Unfortunately, open mortgages expose homeowners to short-term interest rate fluctuations since the interest rate is reset at the end of each 6-month or one-year term. If rates are on an upswing, your mortgage payments will continue to climb. On the plus side, if the rates are going down, your payments will drop at each renewal. With this type of mortgage you are allowed to break the mortgage at any time and either switch lenders or lock into any other type of mortgage without penalty.

Closed Mortgage (1 to 5 year terms are most common but can go as high as 10+ years)
These types of mortgages have structured repayment schedules with specific amounts due on a weekly or monthly basis. They usually have the lowest interest rate available but cannot be prepaid or discharged before the end of the term without having to pay a significant penalty. Ideal for purchasers who need to lock in their mortgage costs for long-term cash-flow planning. While most closed mortgages have lower interest rates and pre-payment privileges such as 10% anniversary payments or monthly double-up payments, they do not have the complete repayment flexibility found in open mortgages.

Variable Mortgage (6 month to 1 year terms are most common)
With this type of mortgage the interest rate is directly linked to the money market rates and can fluctuate on a weekly or daily basis. While this is usually the best rate available, long-term upward swings in interest rates could be quite costly. On the plus side, long-term downward interest rate swings could mean large savings as your mortgage rate follows the market down. With fixed-rate mortgages, a predetermined amount of each monthly payment goes to the interest and the rest is applied to the principle. With a variable rate mortgage the monthly payments are still fixed but, as the interest rate goes up, more of the regular payment will be applied toward the interest. If the interest rate goes down, more of the regular payment will be applied toward the outstanding principal.

There are alternative mortgage products available that can combine different features from the above types of mortgages. Financial institutions may even be willing to customize one of their products in order to meet your specific needs. Call your bank or mortgage specialist for more detailed information.

Mortgage rates differ depending on which of the above types and terms of mortgage you choose. For today's current quoted mortgage rates visit our mortgage rates link.

Mortgage features:

Lenders constantly add additional features and incentives to their mortgage products to attract business in what is a highly competitive market. You should look for the mortgage that best suits both your cash flow and your personal long-term goals. There are many types of mortgage payment structures available, offering both flexible monthly payments and pre-payment options that can save you significant amounts of money over the long term. It is definitely worth looking into your options before signing up.

Most mortgages are very similar to one another and have common features such as...

* They are portable:
You can sell your home and move the mortgage to another property without breaking it and having to pay a penalty. This feature is very attractive if your mortgage has a good interest rate and you want to take it with you to your new home.

* They are assumable:
The new purchaser can take over your mortgage and assume the payments. Usually the lender's approval is required before this is allowed.

* They have pre-payment privileges:
Such as up to 10% extra payment against the principle on the yearly anniversary date or monthly double-up payments. All prepayments are deducted from the principal amount owing and do not go toward accrued interest.

* Automatic renewal privileges:
You don't need to re-qualify financially when the mortgage term is up in order to renew the mortgage. This could be very important if your financial situation changed or if your debt load increased and you don't re-qualify under current rules.

* Allow weekly, bi-weekly or monthly payments:
By switching your payment schedule from monthly to weekly or biweekly you are able to shorten the mortgage amortization period and save a substantial amount on interest payments.

Comparison chart of Monthly vs. Biweekly vs. Weekly mortgage payments
(All calculations are based on a $100,000 mortgage with a 7% interest rate amortized over a 25 year period)
Payment Schedule Each Payment Total Interest Interest Savings Loan Paid Off In
monthly payments (12 per year) $700.00 $110,120.00 none 25 years

Amortization of a mortgage:
The amortization of a mortgage refers to the total number of years required to pay back the entire amount borrowed. While the most common (and maximum) amortization period is 25 years, you can accelerate it to a shorter period of time in order to save on interest charges as long as you are comfortable with the larger payments.

Comparison chart of amount of interest paid over various amortization periods
(All calculations are based on equal monthly payments being paid on a $100,000 mortgage with a 7% interest rate)
Amortization Period Monthly Payment Total Payments Total Interest Interest Savings

Term of a mortgage:
The term of a mortgage refers to the number of months or years that the lender and borrower commit to one another at the quoted interest rate and agreed-upon mortgage features. It differs from the amortization period in that mortgage terms usually range from 6 months to 5 years, while it may require a 25-year amortization period to pay back the entire borrowed amount. Each time a term is up, you must either renew for another term with your current lender at the new rates or find a different lender.