In the minds of most first time buyers, a mortgage is a mortgage. Ontario buyers who have already been through the experience of finding a mortgage before will know that this is not the case. There are many different types of mortgage and the disparate factors that go into a mortgage can be altered to make an almost infinite number of different mortgages. Your geography and your bank's offerings will determine which types of mortgage you have to choose from, but you should at least be familiar with them all. This article is on the subject of offset mortgages.
When you take out a regular mortgage, your borrowing is kept separate from your other financial transactions. You borrow a certain amount of money to purchase Etobicoke homes for sale and you pay it back on a set schedule. Payments must be made directly to the mortgage account, and anything you pay back over and above your set monthly payments generates a fee. The interest that you pay is on the full amount of the mortgage - whatever you haven't yet paid back - and is generated monthly.
In an offset mortgage, however, your borrowing and your savings are linked to one another. When you borrow money to pay for Guelph real estate, even if you borrow the full purchase amount, you only have to pay interest on the amount over and above the amount of money you have saved up. If, for example, you have $20,000 in the bank and you borrow $100,000 to buy a home, the interest you pay on an offset mortgage is on the amount of $80,000 instead of the full $100,000 like it would be in a traditional mortgage. Because it is linked to your savings, there is no penalty for overpayment.
The advantage to this model is, of course, the fact that you can save money on interest when you're buying a property off the Toronto condo listings as long as the interest rate for the offset mortgage isn't sky high compared to the traditional mortgage. It also allows you to pay back on your schedule instead of the bank's (which is useful if you work on contract). There are disadvantages, however. Because you can re-borrow money you have paid back, people are tempted to keep their borrowing balance high, which can come back and bite them when they have to pay off the loan in full upon the sale of the house.
Offset mortgages are not common in Canada. They are much more common in the United Kingdom. The trend has crossed the ocean though, and some companies are picking up on it. The Canadian mortgage companies who do offer interest offset loans tend to structure their programs more like a line of credit than a mortgage, but they can still be used to buy a home. Some examples of North American offset loan accounts are the Manulife One account and National Bank's All-in-One account.
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