6 Mortgage Guidelines to Get the Best Deal

Before you commit to a mortgage, make sure you are getting the best deal possible. A mortgage is not something you should take lightly. Since you will be stuck with it for some time, it’s important to take time to look for a mortgage that will not punish you, one that takes into account your financial situation.

This is important to avoid shackling yourself to an expensive mortgage you will have difficulties servicing. To get the right mortgage, here are some factors you should consider before committing yourself.

1. Amortization Period

The amortization period is the number of years it takes to pay off a loan. Decide how long you are prepared to take to pay off your mortgage. This decision is entirely up to you. You can choose between a short and a longer amortization period. A longer amortization period will attract lower monthly payments but your accumulated interest will be much higher. On the other hand, a shorter amortization period means your monthly payments are higher, but your accumulated interests are lower. If you can, it is advisable to pay off a mortgage as quickly as possible.

2. Downpayment

How much you pay as a downpayment also affects your mortgage’s amortization period. The more the downpayment, the better for you. The mortgage provider may allow you easier repayments over a long time if your downpayment is over 20%. A lower downpayment may attract a shorter repayment period.

3. Mortgage Terms

A mortgage term refers to how long you are committed to your lender and the mortgage rate. This is another decision you have to make. Some terms could be as long as ten years. The key is to decide if you are comfortable with a lender’s terms and, if you are, commit and lock in at those terms. You might also consider shorter terms since they are more flexible. For instance, the five-year mortgage term is highly popular with clients in Canada.

4. Type of Mortgage

There two types of mortgages: variable and fixed. If you are looking to pay a fixed interest rate, a fixed mortgage is ideal. The advantage of this type of mortgage is that your mortgage loan is fixed. It won’t change for the duration of your mortgage term. However, the interest rate is higher than that of a variable mortgage. Nonetheless, the interest will be consistent month after month until you complete paying off the mortgage. For purposes of planning, knowing exactly how much you are supposed to pay every month can be very appealing to some people.

On the other hand, interest on variable mortgages, as the name suggests, change depending on prevailing prime rates. What this means is that you cannot be certain of exactly how much interest rate you will pay. For some months, the interest rates will be lower, or higher in others. Typically, you will pay a lower interest rate, but when interest rates increase, so will your monthly payments.

5. Frequency of Payment

Another consideration before you commit to a mortgage is the frequency of payments. Options include monthly, bi-weekly, weekly, and semi-monthly. The frequency of payments may also affect the speed of your mortgage repayment. For instance, if you choose bi-weekly payments, those are two extra principal payments every year, which translates into a shorter amortization period.

6. Closed or Open Mortgage

With an open mortgage, you have more flexibility since you can repay it any time without attracting a prepayment penalty. A closed mortgage is not as flexible. It also has a limit on how much you can pay towards your principal. If you decide to pay it ahead of term expiry, there will be a prepayment penalty.

Before committing to a mortgage, scrutinize the terms, amortization period, type, and frequency of payments.

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