Next, you’ll have to decide on the type and size of mortgage that best suits your needs. The two basic options are a conventional mortgage, which requires at least a 20% down payment; and a high ratio mortgage, which is designed for people who do not have the 20% down payment. If you purchase a home with a lower down payment, you will pay mortgage default insurance, which transfers the risk of default from the lender to the mortgage insurer.
Other decisions about a mortgage involves the choice between a variable rate, which involves a fluctuating interest rate; and a fixed-rate mortgage, which, as the name implies, means you pay a fixed interest rate for a set term such as three, five or 10 years. If you choose a variable rate mortgage, it’s important to understand that your monthly payments may increase if interest rates rise. By selecting a mortgage with prepayment privileges, such as lump sum, accelerated bi-weekly or monthly payment options, you can reduce your amortization period and save thousands of dollars in interest in the long run.