Buying a new home is a dream for Edmonton residents, and finding the right home is only the first step. You’ll also have to determine what kind of mortgage you want to get to purchase your home, and understanding the types of mortgages available is an important any home buyer needs to take.
A mortgage is nothing more than a loan given to a borrower in order to purchase a home. If the borrower fails to repay the debt, the lender has the right to take possession of the property. The mortgage loan will secure the repayment of the loan by registering a mortgage on the property title.
The type of mortgage registered will depend on your mortgage lender. You will likely not have an option as to the type of mortgage that they choose to register but it is important to understand the one that they do.
Let’s look at the types of mortgages that are now offered by mortgage lenders in Edmonton.
Collateral Charge Mortgage
This type of mortgage is designed to contain the maximum amount of debt that can be secured. In these loans, the mortgage amount and the interest rate that is registered can actually be higher than the initial amount financed and received by the lender. The reason here is that the loan includes potential future borrowings.
For instance, your home loan amount may be $250,000 and your interest rate may be 3%. However, your mortgage lender may register a mortgage amount of $300,000 with an interest rate of Prime Plus 10%. This does not mean you owe the lender $300,000 and must pay 10% interest.
The terms of your mortgage are set out in a credit agreement separate from the actual registered mortgage. The mortgage lender cannot change the terms that you agreed to in the credit agreement.
In the future you may decide to borrow more funds. In that case, you would only be required to sign a new credit agreement as the existing registered mortgage would likely cover the new mortgage amount and interest rate.
This will save you from paying additional lawyer or legal fees and having a real estate lawyer involved.
Conventional Charge Mortgage
This is usually called a ‘traditional’ or ‘standard’ mortgage by lenders. This loan is issued and registered with the exact amount that is financed. Using the same house as above, instead of having a registered mortgage of $300,000, the loan will be registered for the actual loan amount of $250,000 along with the actual terms of your mortgage such as the interest rate, payment amount, and payment dates.
If you want to acquire additional funds in the future, a new mortgage would have to be registered. Your real estate lawyer will help you understand the type of mortgage that your mortgage lender will provide.
In the end though the type of mortgage registered does not affect the amount that you are liable to pay and the terms you agreed to.