Collateral, Convertibles and Cash back
The year 2020 has been off to an interesting start- the world as we know it has completely changed with the Covid-19 virus and the lockdown procedures placed in effect.
Many businesses and schools have had to close, leaving many families wondering how it’s going to affect them personally, with the biggest concern often being “how will I be able to pay my bills?” , or, “Am I able to defer my mortgage payments?” In times like these it’s important to act quickly and efficiently.
If you didn’t already guess, they are mortgage loans. As we’ve mentioned there are over ten types, and we’ve also previously discussed Assumable, Hybrid and Portable mortgage accessible to Canadians. (Read: Canadian Mortgage Options)
Convertible implies that some short-term mortgages can be extended to a longer term. Once the mortgage is converted, the interest rate will adjust to the rate the lender is offering for the continued term.
Cash Back is a product which grants you a percentage of the to-be-bought home as cash in advance and can be spent on anything excluding the down payment. The interest rate for this sort of loan is high, generally costing the borrower nearly twice the price of the cash. This alternative is typically used by individuals who need immediate financial assistance after buying their home for anything from moving expenses to furniture.
Collateral Mortgage, with this type of loan agreement, your lender can grant you additional funds as your home value increases without demanding to refinance your mortgage. It’s a good alternative assuming you will require another loan in the future. However, if you default on your monthly payments, the lender possesses the power to increase your interest rate by as much as ten percent. Furthermore, it is registered under the Personal Property Security Act (PPSA) of Canada and is not transferable to another lender, even at the end of the term as it may include conditions which another bank is not aware of, or deem undesirable. Keep in mind that some banks only propose collateral mortgages, therefore be sure to examine the fine print.
What now, you ask, now that you have reviewed various mortgage options? Use the Canadian Mortgage App to connect with a Broker to help you make an informed decision and get pre-approved; soon you can begin your search for your dream home.