SELECTING THE RIGHT MORTGAGE – How Do You Know Which Mortgage Is Right For You?

Knowing what you need is an important first step towards figuring out what the right mortgage is for you. Assess your needs based on these questions:

What kind of property are you buying?

Selecting the right property can be a great financial investment in the long-term. You can buy a house or condo using a combination of savings and mortgage financing to build a lot of equity and then rent out in future or sell and buy another home. You can also buy a house with suite income and use the rent to pay off your mortgage. If you buy a home that needs some renovation, a purchase plus improvement mortgage will allow you to pay for improvements and include all the costs in one mortgage. No matter what type of housing you choose, you must have a clear idea of how much you can afford for housing payment, including associated fees and property taxes.

How much down payment can you put on the property?

The amount of your mortgage loan equals the maximum home price minus the amount of your down payment. The larger the amount of your down payment, the smaller your mortgage loan, which will mean thousands of dollars of savings in interest charges. Pay as much as you can towards your down payment. If you pay less than 20% down payment, your home loan will be considered a high-ratio mortgage and you will be required to pay mortgage loan insurance.

How long do you plan to stay in this home?

If you plan to live in your home for 5 years or less, then you may want to keep options open for moving home. A portable mortgage may be a great flexible feature that may allow you to transfer your current mortgage to a new property. If you plan to settle in for the long haul, then portability is not an issue and you may want to consider a longer term fixed rate mortgage or a combination of fixed and variable terms.

How flexible are you in paying off your mortgage debt?

Is an open mortgage a better option for you or are you best suited for a close mortgage? Both definitely don’t give the option to pay your mortgage when you want to, but the difference between the two is the amount of flexibility they offer you in making prepayments, which can be making extra payments on the principal or paying off the full mortgage amount completely. These prepayments allow you to pay down your mortgage faster, saving you thousands of dollars in interest charges. An open mortgage can give you greater flexibility to make prepayments without any sort of restrictions or penalties. On the other hand, a close mortgage will offer lesser flexibility in that they can offer an option to make prepayments but only up to a certain amount and may include a prepayment charge which can amount to thousands of dollars.

What’s the best rate you can afford?

Is a fixed rate best or will a variable mortgage be a better option for the long term? When selecting an appropriate mortgage, it generally comes down to interest rates. Fixed and variable mortgages refer to how the interest rate is calculated and applied. If you want to play it safe, a fixed rate mortgage is the best choice. If you have reasons to want to take the risks involved with rates moving up and down, then you may find variable rate or adjustable-rate mortgages more advantageous to you.

What mortgage term is best?

Your mortgage payments and the amount of interest you pay will be determined to some extent by the term of your mortgage. If you want to own your home sooner, then you’ll want a short-term mortgage to pay off your mortgage the earliest time possible. A long-term mortgage may be a good choice if you do not expect to make any changes to your mortgage for more than a few years and you can lock in current interest rate for a longer period. Some lenders offer convertible mortgages, which lets you start out with a short term and then extend to a longer term with appropriate interest rates.

Keep in mind that the type of mortgage that offers the lowest rate may not necessarily be the best fit for your situation. Take the time to assess your needs and match them to the best possible option that offers a complete package of terms, conditions, rates and fees that fit your specific short- and long-term financial goals.