Your mortgage - Terms for consideration
When shopping for a mortgage, a low rate is the priority for most Canadians. However, there is much more to consider before signing on that dotted line.
Finding the perfect mortgage can be complicated. For many, obtaining the lowest rate is the main focus when they apply. This is the largest debt most people will take on in their lifetime, so there is no question that a low rate is important. However, it is also important to remember that all mortgages are not created equal. Every home owner has a different financial situation, and therefore a different set of needs when it comes to their mortgage. The following includes some factors to take into consideration before making that commitment.
In addition to finding a low mortgage rate, you will need to decide between fixed or variable. The biggest difference between the two is the manner in which they are calculated. Fixed rates rely on fluctuations in the bond market. When bond prices rise, fixed rates will follow, but the rate you signed for will remain the same until you renew your mortgage. Variable rates are based on the Bank of Canada's overnight rate, and will rise or fall depending on changes the central bank will choose to make. Your monthly payment will remain the same, the main difference will be the amount of the payment that is applied to the principal. Most who choose a fixed rate do so because of the stability. Something to keep in mind if considering a variable rate is that if the rate rises, the amount of the monthly payment that is applied to the principal is decreased. For most home owners, decreasing the principal is their first priority, which is one reason many are opting for a fixed rate.
Another decision that will need to be made is to take an open or closed mortgage. To put it simply, an open mortgage allows the borrower to pay off all or part of the mortgage at any time, but will typically have a higher interest rate. Closed mortgages will likely come with lower rates, but the tradeoff here is that making extra lump sum payments or paying off the mortgage completely will incur a penalty. Those who are considering selling or moving, expecting a windfall that will cover the mortgage, or have an investment property to sell may want to consider an open mortgage.
Some other things to take into account when mortgage shopping will be the mortgage term (5 years, 10 years, etc.), pre-payment priveleges and possible penalties. Talk to an Ottawa Mortgage Broker for assistance finding the best mortgage to suit your individual needs.