Purchasing a home will most likely be the largest purchase you make in your life. For that reason, you want to ensure that you make the right decisions with respect to financing your home. There are a lot of factors to consider and Mitch will be happy to help guide you through each decision.
Fixed Rate vs. Variable Rate
A fixed rate mortgage will have the same interest rate locked in for the entire term of the mortgage. Your rate and payment will not change throughout the term. A fixed rate is popular among buyers who are more risk averse.
A variable rate mortgage can fluctuate throughout the term of the mortgage. The rate is based off of the bank prime rate. As the prime rate moves up or down, so will the interest rate. There is more risk with a variable rate mortgage but also the potential for more reward (i.e. greater interest savings).
Short Term vs. Long Term
Mortgage terms range from 1 year to 10 years.
A 1 or 2 year term may make sense for someone who anticipates making a change to the mortgage in the near future (i.e. moving, refinancing, etc.).
A 5 or 10 year term is preferred for someone who doesn't plan on making any changes to their mortgage until a number of years down the road.
Interest rates generally increase with the length of the term.
The 5 year term is traditionally the most popular term, as it will offer a favourable rate for a long period of time.
The amortization is the time it will take for you to payoff the entire mortgage, generally measured in years.
The standard amortization is 25 years, but can be higher or lower depending on the situation.
A lower amortization will save you interest and payoff your mortgage faster, but will result in higher regular payments.
A higher amortization will provide you with a lower regular payment, which is nice for cash flow, but it will take you longer to payoff your mortgage.
Your mortgage can be paid monthly, semi-monthly, bi-weekly or weekly.
A bi-weekly or weekly payment will accelerate your payments. With either of these frequencies, you will end up making the equivalent of 13 monthly payments over the course of the year. This will drastically reduce the amount of interest you pay and will shave years off of the mortgage amortization.
The bi-weekly payment is generally the most popular payment frequency.
There are a lot of other factors, beyond the ones mentioned above, to consider when financing your home purchase. Mitch will educate you on all aspects of your mortgage so you can be confident that you have made the right choices.
The Mortgage Professionals - Serving Kingston Since 1989