Factors in selecting your mortgage
You first have to understand what type of mortgage you need, and what kind of mortgage client you are. Only then, you select the best rate possible, given a myriad of other considerations.
What are my unique circumstances?
What type of mortgage customer am I? Can I verify all my income? Is my credit history good enough? Do I plan to move within the next few years?
What term should my mortgage be?
Canadians mostly default to five year terms, unless they perceive a good reason not to. These days, hardly anyone is selecting a ten year term, and agreeing to a higher interest rate just for the peace of mind this rate protection will give them in years six through ten. (No one really knows though)
Others select a three or four year term, often because they feel there is a good chance they will need to sell within that time frame, and they wish to avoid a large prepayment penalty.
And others will select a shorter term; perhaps because these are usually the lowest rates offered, and they feel they can lock in later, if need be, at the same or even lower than prevailing, long term rates.
What if I have to break this mortgage?
This has always been a topic of much heated discussion, especially as there are no industry standards as to how this is calculated. The major banks tend to have a bad rep for punitive calculation formulae of prepayment penalties, as do some other lenders.
Most people do not think about this till it’s way too late. Better to research your lender’s policy upfront, and map that against your expectation of whether or not you think you might break your mortgage before your term expires.
Do I need flexibility in my mortgage?
If you move, can you take your mortgage with you? If you sell, can the buyer assume your mortgage and you can avoid a prepayment penalty? Can you modify your payments; skip a payment if need be; or make a lump sum payment against your principal owing if you come into some money?
Ross Taylor & Associates – Connect With Us