Understanding your mortgage options

For many home buyers, the most important feature of their mortgage is the interest rate. As your mortgage is likely the largest debt you will acquire, paying the least amount of interest possible is important. Aside from a low mortgage rate, there are several other factors to take into account when shopping around for a first mortgage, or renewing for another term. Before settling in for five or ten years, be sure to look into the additional features of your new mortgage and whether they will fit your needs.

When deciding on a mortgage rate, it can be difficult to decide between fixed or variable. A fixed rate offers the security of always knowing what your interest rate is and what your monthly payments will be, while a variable rate offers the ability to take advantage of the lowest rate possible, depending on market conditions. Many will shy away from variable rate mortgages because of the uncertainty of fluctuating mortgage payments. However, many lenders offer the option to make fixed payments on a variable rate mortgage. If the interest rate decreases, a larger percentage of the monthly payment goes towards the principal and vice versa. This option offers the best of both worlds: the stability of the same mortgage payment each month with the benefit of the lowest possible mortgage rate.

An increasing number of Canadians are paying their mortgages off faster by periodically making lump-sum payments, also known as pre-payments. This is a fantastic way to reduce the debt, but it is important to note that lenders will normally set a limit to how much can be pre-paid. For most lenders, the limit is set at 15-20% of the mortgage balance per calendar year, but can differ from one lender to another, so find out for sure before diving in. Consulting a professional Mortgage Broker is an easy way to navigate the sea of mortgage questions. They will seek out lenders on your behalf to find not only the lowest possible mortgage rate, but also the most favourable mortgage terms based on your financial situation.

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