Are you looking to purchase a home or refinance your current mortgage and feeling tempted by those record low interest rates that are currently on the market? Not so fast! Don't become SO focused on only getting the lowest rate that you don't consider options that actually make better financial sense for your individual situation in the long run. Here are 6 key areas that you will need to discuss with your Mortgage Professional in order to choose the mortgage that is right for you:
- Fixed or variable rate? We are not talking about a percentage here, but actually what type of rate works best for you. A fixed rate has the same interest rate for the term of the mortgage while a variable rate is dependent on the Bank of Canada. If you are concerned about interest rates rising in the near future or are worried about any potential penalties that you may incur should you break your mortgage early, then you should consider a fixed rate mortgage. Consider a variable rate mortgage if you know you won't have trouble sleeping at night knowing your mortgage payments could increase or if you think you may sell your home before the term is up.
- Mortgage Term - These generally range from 1 to 5 years, but 6, 7 and 10 year terms are available depending on the lender. The rate will be fixed for the duration of the term. When your term is over, you will be required to renew your mortgage. You should discuss with your Mortgage Professional your future plans. If a move or family could be in the near future, perhaps a shorter term would be a better option.
- Prepayment Options - Some lenders will allow you to pay your mortgage down more quickly. This can range from making an extra payment, increasing the amount of your payment to making an annual lump sum payment. If this is an important option to you, seek out a lender that allows prepayments.
- Standard Charge Mortgage vs. Collateral Charge Mortgage - Most fixed-rate mortgages are registered as a Standard Charge Mortgage and can be switched, transferred or discharged. The ability to switch/transfer is important at your maturity date as it ensures you a great rate now AND in future terms. There is no cost to switch/transfer at renewal. A Collateral Charge Mortgage can only be discharged and not switched or transferred. Therefore, the best mortgage rates may not be available to you upon renewal of your mortgage term unless you discharge and register a NEW mortgage with another lender, at your own cost.
- Mortgage Penalties - Chances are you don't enter into a mortgage with a plan to break it. We all know that circumstances change and you may be required to exit your mortgage before the end of your term. If you do, be aware that you will most likely incur a penalty to do so. The type and amount of the penalty will depend on how your lender calculates it. The minimum is a 3 month interest penalty, but larger penalties can come into play with an IRD (Interest Rate Differential) penalty. In the latter, the rate used will depend on the lender and the policy they have in place for penalties. This could vary from discounted rate to discounted rate, posted rate to posted rate or posted rate to discounted rate. To the borrower, this could mean the difference in thousands of dollars! It is important to consider how your lender calculates penalties if you think there is a possibility that you might exit your mortgage early.
- Tax Installment Payment Plan (TIPP) - This allows you to make consecutive monthly payments for your property taxes rather than a single annual one. This can make for a more budget friendly choice when spread out over 12 months, especially for newer homeowners, but not all lenders will allow for this option. Ask your Mortgage Professional which lenders do.
Putting this altogether, it is easy to see why it is important to look beyond just the interest rate when considering what is the best MORTGAGE for you. Ready to get started? Find a trusted and knowledgeable Manitoba Mortgage Broker at One Link Mortgage today! We are here to help.