Patrick Bieleny Outlines the Various Types of Mortgages

A Professional Guide to the Types of Mortgages

Patrick Bieleny
Sep 16, 2020 · 3 min read
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Patrick Bieleny is the proud owner and operator of PB & Co. Houses in Calgary, Alberta. Bieleny was born in Eastern Europe in the eighties, before he immigrated to Toronto in the pursuit of education. As a University of Toronto graduate with a degree in business management, Bieleny has a passion for real estate investment and entrepreneurial endeavors. His company specializes in finding, flipping, and selling choice properties, but Bieleny’s true love is turning fixer-uppers into real homes for deserving people. If you are thinking of buying a property in Canada, whether it’s to flip a house yourself or a long-term home, you are likely to investigate mortgages. As a businessman, Bieleny believes in doing market research before making any big decision, and that includes understanding the types of mortgages you have to choose from.

The Traditional Mortgage

The traditional mortgage is also known as a low ratio mortgage in the business, he says. This type of mortgage requires a 20% down payment on the total price of the home. The benefit of this mortgage is that you are not usually required to purchase mortgage protection insurance, which is an added cost. A high ratio mortgage on the other hand allows for a smaller down payment but does require you to purchase mortgage default insurance from one of the three companies offering it in Canada: Canada Mortgage and Housing Corporation, Genworth Financial, and Canada Guarantee. Determining whether you’ll end up with a high or low ratio mortgage will largely depend on the market you are shopping in and how much you have saved up for your purchase. In cities like Toronto and Vancouver where real estate prices are at an all-time high, high ratio mortgages are more common, Bieleny explains.

Open and Closed Mortgages

Another factor to consider when researching mortgages is whether you want an open or closed mortgage. An open mortgage is a flexible product that allows the borrower to repay the loan at any time without penalties. Open mortgages generally have a shorter repayment term than their counterparts and their rates are generally higher. If you plan to pay back your mortgage quickly, this may not be much of a deterrent. Closed mortgage agreements cannot be prepaid or renegotiated before maturity, so it’s important to pay close attention to the terms of the agreement before signing on, Bieleny advises. But, if you’re more inclined to know exactly how much you will be paying every month ahead of time without feeling the pressure to repay the loan quickly, this may be the ideal choice.

Fixed and Variable Rates

The third consideration you should make when looking at mortgages is whether you are interested in a fixed rate or a variable rate. Just as it sounds, fixed-rate mortgages have their interest rates locked in at the beginning of the mortgage term. The mortgage rate can only be reassessed at specific points in time, as outlined by the mortgage agreement. Variable-rate mortgages rely more on the market to determine your interest rate. This can mean a lower interest rate when the market is good, but can also run the risk of a higher rate if the market turns.

There are many factors to consider when looking for the right mortgage, says Bieleny. Doing your research and understanding some of the key terms used when discussing mortgages will be key to making your decision. He also advises shopping around and checking out the different terms and rates offered by different lenders. As a professional in the real estate industry and with a background in business management, Bieleny knows first-hand how the details of a mortgage agreement can really inform your comfort level. If you are more risk-tolerant, an open mortgage with a variable interest rate might be for you. If you prefer to know exactly what’s coming and when, perhaps a closed mortgage with a fixed interest rate is best for you.

Real Estate 101 with Patrick Bieleny

Calgary, Alberta, Canada.

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