Choosing a Mortgage That is Right for You
When you buy a home, you may only be able to pay for part of the purchase price. The amount you pay is a down payment. To cover the remaining costs of the home purchase, you may need help from a lender. The loan you get from a lender to help pay for your home is a mortgage.
With a secured loan, the lender has a legal right to take your property. They can do so if you don’t respect the conditions of your mortgage. This includes paying on time and maintaining your home. Unlike other loans mortgages are/may/will:
- be secured by a property
- have a balance owing at the end of your contract
- normally need to renew multiple times until you finish paying the balance in full
- must meet qualification requirements including passing a stress test
- need a down payment
- need to break your contract and pay a penalty
- typically for an amount in the hundreds of thousands of dollars
When you’re shopping for a mortgage, your lender or mortgage broker will provide you with options. Make sure you understand the options and features. This will help you choose a mortgage that will best suit you and your benefits.
This includes your:
- mortgage principal amount
- amortization
- payment frequency
Your Term:
The mortgage term is the length of time your mortgage contract is in effect. This consists of everything your mortgage contract outlines, including the interest rate. Terms can range from just a few months to 5 years or longer.
At the end of each term, you must renew your mortgage if you can’t pay the remaining balance in full. You’ll most likely be required to many terms to be able to pay everything off.
The length of your mortgage term has an impact on:
- your interest rate and the type of interest you can get (fixed or variable)
- the penalties you must pay if you break your mortgage contract before the end of your term
- how soon you must renew your mortgage agreement
Mortgage lenders charge a penalty fee when you break your contract. If you sell your home, you could owe the lender thousands of dollars in penalty fees.
Options related to mortgage flexibility include if your mortgage:
- is open or closed
- is there a penalty to break the term
- how is that penalty calculated if broken
- is portable
- allows you to borrow more money if the mortgage is ported to another property that is being purchased
- is assumable
- has a standard or collateral security registration
Opened Mortgages (aka Secured Lines of Credit):
The interest rate in most cases is usually higher than on a closed mortgage with a comparable term length. This allows more flexibility if you plan on putting extra money toward your mortgage.
An open mortgage may be a good choice for you if you:
- plan to pay off your mortgage soon
- plan to sell your home soon
- think you may have extra money to put toward your mortgage from time to time
Closed Mortgages (aka Fixed and/or Variable):
Closed term mortgages usually limit the amount of extra money you can put toward your mortgage each year. Your lender calls this a prepayment privilege, and it is included in your mortgage contract. Not all closed mortgages allow prepayment privileges. This can vary from lender to lender.
A closed mortgage may be a good choice for you if:
- you plan to keep your home for the rest of your loan’s term
- the prepayment privileges provide enough flexibility for the prepayments you expect to make
It is PARTICULARLY important to have a clear understanding of the implications when it comes to choosing the right mortgage that’s best for you. It makes a significant difference in future planning and can impact you in incredibly substantial ways.
At GLM Mortgage Group, we know what questions to ask. We have relationships with the lenders that you know about and the lenders you don’t. We would be pleased to educate you on the financial options available to you. We want you to make the best decision possible on the mortgage that you are committing to. Call us anytime for a FREE consultation on the mortgage products available to you.
