Whether you want to buy a new home or you are looking for a refinancing plan on your existing mortgage, if you are not careful you could easily fall prey to those ultra-low interest rate deals that have in the recent past flooded the market. Price alone isn’t the only determinant here. Although getting a low-priced mortgage is good, don’t focus too much on price at the expense of other factors that could help you make a better financial decision.
In a bid to help you make a sound mortgage decision, below we discuss six key areas you need to consult your Mortgage Professional on before choosing your mortgage plan:
1) Fixed Rate vs. Variable Rate
This isn’t about percentages but actually what kinds of rate suit your situation best. While a fixed rate will have the same interest rate for the entire term of the mortgage, a variable rate depends on the Bank of Canada policies.
If you’re worried that interest rates could rise shortly, or you fear to incur penalties in case you break your mortgage agreement early, then we recommend a fixed rate mortgage for you. But if you aren’t concerned about mortgage payments increasing, or if you think you may consider selling your house before your mortgage term is up then go for a variable rate mortgage.
2) Mortgage Term
Typically, they range between 1 and five years, though some lenders also offer 6, 7 and 10-year mortgage terms. The rate is fixed for the entire duration of the term, and when it’s over, you’re required to renew the mortgage. Consult your Mortgage Professional about your plans to see what mortgage term is best for you. In case you’ve plans of moving or having a family shortly, a shorter term may be your most appropriate option.
3) Prepayment Options
Certain lenders will let you pay your mortgage down much faster. This can range from paying an extra amount and raising the amount of your payment to paying annually in lump sum. If you think this is a good option for you, go for a lender that offers prepayment options.
4) Standard vs. Collateral Charge Mortgage
A majority of fixed-rate mortgage plans are registered as a Standard Charge Mortgage, meaning that they can be transferred, switched or discharged. This switch/transfer flexibility is crucial at the maturity date since it guarantees you better rates now and in future mortgage terms. Also, no fees are charged to switch or transfer at renewal.
On the other hand, a Collateral Charge Mortgage can only be discharged; never switched or transferred. This means that you may not be eligible to take advantage of the best rates in the market during the renewal of your mortgage term unless you opt to discharge and register a new (at your expenses) with another lender.
5) Mortgage Penalties
Naturally, no one wants to break a mortgage and suffer its consequences. But circumstances may change, and you’re forced to. If that happens, you’re most likely going to incur a penalty, with the type and amount of this penalty depending on your lender’s terms and calculations. While the least is a 3-month interest penalty, with an IRD (Interest Rate Differential) penalty you could find yourself paying much higher, with variations from one discounted rate to another; one posted rate to another; or a posted rate to a discounted rate. Before settling for a particular lender, make inquiries to know how they calculate penalties, especially if you think there is a likelihood that you might be forced to break your mortgage before its full term.
6) Tax Installment Payment Plan (TIPP)
This plan enables you to pay your property taxes in consecutive monthly premiums rather than via a single annual lump sum. Considering that payments are staggered over 12 months, this plan can be more budget-friendly, more so for newer homeowners. However, since not all lenders offer this flexibility, it’s important to talk to your Mortgage Professional and seek to know which lenders allow it.
From our discussion above, it’s very easy to see why the best mortgage plan isn’t necessarily the most cheaply priced. It’s therefore crucial that you look beyond interest rates when considering taking a mortgage.
So, are you ready to set the ball rolling? Contact a Capital Mortgage broker today; we’re here to help you get the best mortgage!