If you are planning to buy a home in Alberta, a residential mortgage can help you finance your dream home. But before you jump into the process of applying for a mortgage, it’s essential to have a clear understanding of what a residential mortgage is, how it works, and what types of mortgages are available in Alberta.
In this guide, we will provide you with all the information you need to know about residential mortgages in Alberta, from eligibility criteria to types of mortgages, rates, and more.
What is a Residential Mortgage?
A residential mortgage is a loan that you take out to finance the purchase of a residential property, such as a house or a condo. The mortgage is secured by the property you are buying, which means that if you default on your payments, the lender can foreclose on the property and sell it to recover their money.
In Alberta, like in other provinces in Canada, you can get a residential mortgage from a bank, a credit union, or a mortgage broker. Each lender has its own set of eligibility criteria, rates, and terms, so it’s essential to shop around and compare different options before making a decision.
Eligibility Criteria for a Residential Mortgage in Alberta
To be eligible for a residential mortgage in Alberta, you will need to meet certain criteria, such as:
- Credit Score: Your credit score is one of the most important factors that lenders consider when deciding whether to approve your mortgage application. A high credit score (above 680) can increase your chances of getting approved and getting better rates.
- Income and Employment: You will need to have a stable income and employment history to qualify for a mortgage. Most lenders require that you have been employed for at least two years and that your income is sufficient to cover your mortgage payments.
- Down Payment: You will need to have a down payment of at least 5% of the purchase price of the property. If your down payment is less than 20%, you will need to get mortgage insurance.
- Property Appraisal: The property you are buying will need to be appraised by a professional appraiser to determine its value.
Types of Residential Mortgages in Alberta
There are several types of residential mortgages available in Alberta, each with its own set of features and benefits. Here are the most common types:
- Fixed-Rate Mortgages: With a fixed-rate mortgage, your interest rate remains the same for the entire term of the mortgage, which is usually between one and ten years. This type of mortgage offers stability and predictability, as your payments will not change during the term of the mortgage.
- Variable-Rate Mortgages: With a variable-rate mortgage, your interest rate can fluctuate based on market conditions. This type of mortgage offers flexibility and the potential to save money if interest rates go down.
- Open Mortgages: An open mortgage allows you to pay off your mortgage in full or make additional payments without incurring penalties. This type of mortgage is suitable for borrowers who expect to receive a large sum of money, such as an inheritance or a bonus, and want to pay off their mortgage faster.
- Closed Mortgages: A closed mortgage has a fixed term, and if you want to pay off your mortgage early or make additional payments, you will likely incur penalties. This type of mortgage is suitable for borrowers who want stability and predictability in their mortgage payments.
