Finding The Mortgage That Fits
Fixed Vs Variable
Distinguishing these two is simpler than you think. Having a fixed rate is like having a “guaranteed” and unchanging rate for a period of time (usually a 5 year term), while variable rates fluctuate with the economy which can be good or bad. Fixed rates are set based on the Canadian Government bond yields, while variable rates are determined by each lender’s “Prime rate” which follows the Bank of Canada’s target overnight rate.
Statistics say the variable rate usually outperforms the fixed over the long haul. The choice of predictability or no predictability is, of course, entirely personal. Let us help you choose!
Open Vs Closed
An open mortgage allows you to pay back the amount you have borrowed whenever you want, without penalty. A closed mortgage will have restrictions on this privilege. Sometimes, you will pay a slightly higher interest rate on an open mortgage. This is the banks way of mitigating the risk that you might pay them back early. If you do, they will not collect as much interest from you long term, so they try to make it up in the short term with the higher rate.
Are you intending to accelerate the repayment of your mortgage with extra payments or renovate and flip the house quickly for a profit? If so, you will want an open mortgage. Make sense?
Amortization
The amortization is simply the length of time the bank uses to determine your monthly payment. For example, “if” you take 25 years to pay the bank back monthly, your payment will be “X”. Alternatively, “if” you take 35 years to pay the bank back monthly, your payment will be “Y”. The longer the amortization is, the lower your monthly payment will be but be careful, you will also pay much more interest along the way!
Term
It’s important to distinguish between “amortization” and “term” when arranging your mortgage. Your term is simply the length of time your agreement with the bank will last. If its 5 years, then you and the bank agree to a set of contractual obligations like interest rate for that period, then both parties have the opportunity to renegotiate or renew the agreement at the end of the term.
Getting Prepared
“Irregularities” in your current status can create hurdles for you to leap over in order to secure a mortgage. Be sure to have documentation to support whatever you claim to be the truth on your application. In most cases you will be asked to provide proof of your citizenship, employment status, income, and credit history.
Especially ensure that if you…
- are New To Canada – That you have your landed immigrant card or visa
- have Past Credit Challenges - have Proof of paid accounts
- are a Commission Earner – you’ll need your most recent tax assessment
- are Self-Employed – you’ll also need your Master Business License and/or your Articles of Incorporation
