As far as relationships go, the relationship you have with your mortgage is pretty serious. In fact, it’s kind of a long-term thing. That’s why finding and choosing a mortgage that best suits your needs, your financial circumstances and any other priorities is so very important. Before you commit, take a moment to decide whether your mortgage is a perfect match. Here are a few things to consider:
How long would like to take to pay off your mortgage? Your amortization period is the total number of years it takes to pay off the full amount that you owe. It’s up to you how long you would like to take to pay it off. Typically, first-time home buyers tend to choose the longest amortization period. Choosing the longest amortization period available means that your principal and interest payments will be lower, however, it also means that you’ll incur more interest in the long run as a result.
The amount you have saved for your down payment may also affect your options when it comes to amortization. For example, if your down payment is less than 20 per cent, you may be required by your lender to sign up for a shorter amortization period.
For how long are you ready to commit? Your mortgage term is the length of time you are committed to your mortgage rate and lender. It’s also up to you. Some lenders offer terms as long as ten years, so if you feel comfortable with your mortgage variables, it may make sense to lock in and commit. Shorter terms are also an option and may provide a little more flexibility. The most popular mortgage term in Canada that most home buyers generally stick with is a five-year mortgage term.
Is the type of mortgage you are considering really your type? Mortgages come in a few different varieties, including fixed and variable. A fixed mortgage means that the interest rate attached to your mortgage loan is set in stone and will not change throughout your mortgage term. Although your interest rate will be a little higher than a variable rate mortgage, it will be consistent, and you’ll have the comfort knowing exactly what your mortgage payments will be.
Variable mortgages, on the other hand, fluctuate and are based on prime rates. Typically, this means a lower interest rate than a fixed rate mortgage, however, there is a bit of risk involved, including the fact that your payments could increase when interest rates rise.
How often do you want to pay? When selecting the perfect mortgage, you can also choose your payment frequency. Typically, lenders will offer a variety of options including weekly, bi-weekly, semi-monthly or monthly. Although it may seem like these are essentially all the same, that’s not actually the case. With bi-weekly payments, for example, you’ll actually be making two extra principal payments per year, which can speed up your amortization period.
Closed or Open
Is your relationship with your mortgage closed or open? An open mortgage provides a little more flexibility as you are able to pay it down at any time without incurring a prepayment penalty. Closed mortgages are a little less flexible and typically set limits on how much you can pay off towards your principal. They also may involve prepayment penalties.
Questioning whether you are really ready to commit to that mortgage you’ve been thinking about? As an experienced mortgage broker in Barrie, Ontario, I take pride in understanding the needs, goals and priorities of my clients and using this information to find their perfect mortgage match. Contact me today at (705) 315-0516 and let’s review your options.