Mortgage Considerations

Searching for your dream home requires a hefty investment of time and effort. When you’re looking for the best mortgage to help you purchase that perfect place, you should be just as thoughtful and careful. As a home buyer, there’s no getting around it – you will probably need to use the services of a mortgage lender. Once you have explained your situation and home-buying expectations, your Realty Executives agent will advise you to speak with a lender and calculate the price range you can afford. By starting the mortgage pre-approval process, you and your agent can narrow your home hunt down to the properties that fall within your budget.

During your search for a mortgage, make sure you do your homework and find the deal that makes sense for you. Mortgage interest rates have plunged to near record lows in recent years, but the resurgent Canadian economy has resulted in a gradual hike that began in 2017. As economic growth continues, interest rates will keep climbing. Although the days of ultra-low mortgage interest rates are likely over, now could be the right time to look around and lock in while rates are still relatively low in comparison to previous decades.

Mortgage Pre-approval: An Important Step

As you embark on your journey to find the right home, getting pre-approved for a mortgage is one of the most important and proactive steps you can take as a home buyer. Calculating the amount of financing you are eligible to receive will eliminate the question marks involved in looking at properties. By going through the pre-approval process, you and your Realty Executives agent can head into the real estate market with full confidence, prepared to find the home that meets all your qualifications.

When you talk to the financial representative of your choosing, they will open the mortgage pre-approval process by verifying your income and down payment, among other details. If this is your first experience dealing with the complicated terrain of home mortgages, it’s completely natural to feel overwhelmed and bewildered, so don’t hesitate to ask your lender any questions you may have at any point. Always request clarification if you are unsure of anything and be certain you understand every option available to you.

Throughout the pre-approval procedure, you deserve all the information you need to make the right choices for you and your loved ones. Depending on the way the loan is structured, this decision could involve tens of thousands of dollars across the term of your mortgage. There are no dumb questions when it comes to your finances and your future, so move on to another lender if you feel your chosen representative isn’t providing clear answers. In the competitive financial services industry, you won’t have a problem finding a lender who will treat you with dignity and respect.

Fixed vs. Variable

There are two different types of mortgages available – fixed and variable – and each has its own positives and negatives. Your particular financial circumstances, the current state of the market, and your level of comfort with fluctuations in interest rate will determine which mortgage fits your lifestyle now and in the future.

• Fixed Mortgage: As the name implies, a fixed mortgage is based on a secure interest rate that will not change over the term of the loan. This type of mortgage is ideal if rates are down and you want to lock in before they begin to rise. A fixed mortgage affords stability and a consistent budget since you will always know how much you pay every month.
• Variable Mortgage: Alternatively, you might prefer to look into a variable mortgage, which involves a fluctuating interest rate influenced by the shifting tides of the market. If interest rates are starting to drop, this type of mortgage may be a more desirable option, but it could become a source of anxiety when rates increase.

Term of the Mortgage

Referring to the period of time specified in the loan agreement, the term of the mortgage generally falls somewhere between one and five years. When the term has elapsed, the mortgage is classified as due and payable, although a renewal is typically negotiated between the borrower and the lender for a new term. If your financial situation has changed since you signed the original contract, the end of the term allows you to modify the conditions of the loan to suit your current circumstances.

Locking in for a long term mortgage is advisable when interest rates are low, especially if rates are forecasted to rise. However, if interest rates are higher and you are unsure of the direction of the market, you may choose a short term initially and transition to a longer term depending on how rates are trending.

Open or Closed

Another factor that will determine the right mortgage for you is how you wish to repay the loan. Some home buyers find the financial freedom offered by open mortgages more suitable, while others prefer the consistency of closed mortgages.

• Open Mortgage: For maximum flexibility, an open mortgage enables you to pay in larger installments whenever you can afford them without incurring any penalties. The downside is often a higher interest rate and a shorter term.
• Closed Mortgage: Although this option restricts your ability to randomly make bigger payments than usual, a closed mortgage has the benefit of a lower interest rate and a longer term than an open mortgage.

Amortization

Simply stated, amortization is the repayment of debt over a specified period of time in incremental installments of principal and interest. In order to make lower regular payments, most first-time home buyers agree to a longer amortization period, usually around the maximum of 25 years. If you can handle larger monthly payments, a shorter amortization results in less interest you have to pay.

Choosing Your Mortgage

With a wide array of options available, determining the mortgage that works for you can be a challenging and painstaking process. Your decision will depend on a variety of variables including personal preferences and financial circumstances. When you meet with your mortgage specialist, they should provide detailed explanations of each scenario to your satisfaction. Remember, this is your future you are negotiating, so don’t be afraid to ask as many questions as needed until you understand exactly what you’re getting into.