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How To Pick A Mortgage Type

Whether your mortgage is up for renewal, you’re thinking of refinancing or this is your first mortgage; picking an interest rate and mortgage term that is right for you can be a daunting task for some. First you have to decide if you want to take a fixed or variable interest rate, then you need to determine what term length suits you best. In addition to that, you then choose between a closed or open term and lastly, you choose the amortization that works best for you. Today’s interest rates are on average 0.60% lower than they were in 2010. Doing your research before you commit is especially valuable if you plan on getting a new mortgage within 90 days or want to take advantage of the low rates with an early mortgage renewal.

Get your pen and narrow down the pickings by taking this 19-question quiz to help you determine which rate and term suits your needs best.

1.  Have you had a mortgage before?

A. No

B. Yes

C. Sort of

2. Are you on a strict monthly budget or do you have some wiggle room?

A. Strict Budget

B. Wiggle Room

C. Not sure yet

3. What is more important to you?

A. Mortgage payment stability

B. Potential mortgage interest savings

C. Uncertain

4. Do you plan on using your mortgage pre-payment privileges?

A. No

B. Yes

C. Maybe

5. Are you worried about rising interest rates?

A. Yes

B. No

C. Kinda

6. Do you plan on making a move within the next 3 years?

A. No

B. Yes

C. It’s up in the air

7. Is it important you know exactly how much your mortgage balance will be at the end of your term?

A. Yes

B. No

C. It’d be nice to know

8. Do you pay attention to economic news and trends?

A. No

B. Yes

C. Sometimes

9. Are you financing a rental property?

A. Yes

B. No

C. Not sure yet

10. Do you plan on making a change to your financial profile in the near future? For example, maternity leave, going back to school or a job change?

A. Yes

B. No

C. Uncertain

11. Do you have experience with revolving debt payments, such as a credit card or a line of credit?

A. No

B. Yes

C. Sort of

12. Are you interested in a home equity line of credit product?

A. No

B. Yes

C. Maybe

13. When it comes to your finances, how do you play it?

A. Safe and sound

B. Risky and potentially rewarding

C. Little bit of both

14. Do you have some savings available in case of emergencies?

A. No

B. Yes

C. It fluctuates

15. Do you have other significant debts you are currently paying monthly?

A. Yes

B. No

C. Not really sure

16. Do you plan on taking a mortgage term that is longer than 5 years? (There are 7 and 10-year terms available)

A. Yes

B. No

C. Maybe

17. Do you have to state your income in order to qualify for a mortgage or can you confirm it in writing?

A. Yes

B. No

C. Uncertain

18. Do you have good credit?

A. No

B. Yes

C. Not sure

19. Do you have more than 5% downpayment available?

A. No

B. Yes

C. Doesn’t apply to me

Hopefully this quiz helps steer you towards a rate option that works for you before you start a detailed conversation with a mortgage professional.When committing to a large debt like a mortgage, be sure to explore all the options available to you before choosing a rate and term for your financing.

Mostly A’s

Fixed it is

A fixed rate mortgage offers interest rate and payment stability, a predetermined amount goes toward interest and principal and a low qualifying rate on a 5-year term. This can be appealing to the budget conscious, first-time homebuyers and cash flow savvy investment property owners.  Fixed rate terms mostly come in lengths between 1 and 10 years, offering the maximum amount of financing length options. In addition to that, most fixed terms offer flexible pre-payment privileges and reasonable payout penalties.

Mostly B’s

Variable is the way 

The variable rate mortgage features a few different product options including the Home Equity Line of Credit, open term, and closed variable rate term. Variable rate mortgage terms have historically seen interest savings over their fixed rate counterparts. Since the interest rate of a variable product fluctuates with prime rate, be prepared for the possibility that your mortgage payment could change at some point during your mortgage term. This is why it is recommended a borrower taking a variable rate be prepared for fluctuating payments by having experience with variable payments and access to funds for a potential increase in mortgage costs.

Mostly C’s

Explore the pros and cons

If you find yourself circling mostly C’s, further research is required. I recommend taking an in-depth look at the pros and cons of the rate and term options available to you and if you’re still undecided at that point, talk with an experienced mortgage professional to get some recommendations based on your financing priorities.

If you’re looking for an experienced Mortgage Broker, contact the Mortgagegirl at 780.433.8412 or info@mortgagegirl.ca. Stay in the loop by following on Twitter @mortgagegirlca.

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One thought on “How To Pick A Mortgage Type

  1. Pingback: This or that? Making mortgage decisions easier |

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