SELECTING THE RIGHT MORTGAGE
The right mortgage for you isn’t necessarily the one that offers the lowest rate, but rather a complete package of terms, conditions, rates and fees that fit your specific short- and long-term financial goals. A Mortgage Centre specialist will strive to understand your needs and explore options that are relevant to you.
Some of the basic choices in selecting a mortgage include:
Conventional vs. high-ratio mortgages
A conventional mortgage equals no more than 80% of the appraised value or purchase price of the property, whichever is less. A high-ratio mortgage is usually for more than 80% of the appraised value or purchase price. It’s often referred to as an NHA mortgage because it is granted under the provisions of the National Housing Act and must, by law, be insured through a mortgage insurance provider. The insurance premium as well as application, legal and property appraisal fees are paid by the borrower.
Closed vs. open mortgages
Closed mortgages generally offer lower interest rates than open mortgages of the same term, but open mortgages let you pay off as much as you want, any time, without penalty – which could save you a bundle in the long run.
Short term vs. long term
The term you select is important. Short term mortgages are appropriate if you believe interest rates will be lower at renewal time. Long term mortgages are suitable if you feel current rates are reasonable and you want the security of budgeting for the future. This can be especially important for first time homebuyers.
Fixed rate vs. variable rate
Identifying whether a fixed or variable rate mortgage is best for you is an important decision. The truth is that no one can accurately forecast what the future holds in the financial markets 3 to 5 years from now. So assessing whether a fixed or variable rate mortgage product is best for you requires an understanding of your personal financial plan and ability to handle market fluctuations.
Fixed rates are based on the yield on Canadian government bonds and will not change during the term of your mortgage. This buffers you from increases in market interest rates and allows you to budget precisely for whatever term you select – from one to as many as 25 years.
Variable rate mortgages fluctuate with the market. Variable rates are essentially determined by institutional prime lending rates, which are influenced by the Bank of Canada’s key interest rate. So you receive a discount or surcharge on prime based on what your lender is offering at any given time.