Choosing the Right Mortgage
April 21, 2013 | Posted by: Mike Garganis
Armed with all of this information, how do you decide which mortgage is best for you?
Some questions to ask yourself would include:
Long Term vs. Short Term
Am I planning to live in this house for a long time or do I hope to upgrade in a
If you are planning on living in this home for many years to come, then you might consider
a long-term mortgage to avoid rate fluctuations and the cost of renewing your mortgage at
regular intervals. Ask me how this factors in to the Annual Percentage Rate.
What payments can I afford, and do I have room in my budget to allow for increases in my mortgage payments if rates rise drastically – even if only for a short term?
If yes, then you might consider a short-term or variable-rate mortgage to take advantage of the lower short-term rates. This is not advised for people who will lose sleep over payment fluctuations or will not be able to afford a dramatic increase in their payments.
Are rates on an upswing or downward trend?
If rates appear to be on a downward trend, you might consider a convertible or variable mortgage, which allows you the flexibility of enjoying a short-term rate with the option to lock in if rates increase.
If rates are on the rise, you may want to lock in to a long term if the rise looks permanent. If the rise in interest rates appears to be a “glitch” in the market, you might consider riding it out by taking a short-term or convertible mortgage so that you can lock in to a long term when rates come back down.
How do I know if rates are going up or down?
Talk to me - as your mortgage broker I cannot (no one can) predict the future, but I will be able to give you an informed opinion of current trends.
Are there costs associated with going short term?
Most lenders charge a renewal fee for clients to renew their mortgage. This ranges from $75 to $250. If a client wants to take advantage of short-term rates by taking consecutive 6-month terms, the fees can add up to a considerable amount.
Considering Prepayment Privileges
Prepayment privileges are options, which allow you to make extra payments on your mortgage. But how much weight should you put on prepayment privileges when deciding which mortgage is best for you?
Is my key concern to have the best interest possible?
If yes, you may not need to consider the prepayment privileges. In fact, some lenders have mortgage products with very limited prepayment privileges, but offset this with a slightly lower rate. Read my blog about Accelerated Mortgage Mechanisms.
Am I a saver by nature? Will I be paying my mortgage off as quickly as possible?
If yes, then you will want the most flexible prepayment privileges possible.
As you can see, interest rate isn't the most important variable when deciding which mortgage is best for you.
There are so many options and programs out there.
Let's go through some numbers, I will show you how to pay off your mortgage sooner.