Know your Mortgage ABCs
There’s a lot to consider when choosing a mortgage to finance your home. Making the right choice can save you thousands of dollars over the life of your loan. Here are some Mortgage ABCs that you should consider, including some key factors in determining how quickly you can pay down your mortgage and at what cost.
A Amortization period – the term, or length of time that of the entire loan amount is scheduled to be paid back; the shorter the amortization period, the higher the payments, but the faster you pay off the loan.
B Buyer pre-approval – you can be pre-approved for a mortgage before you even start looking for your dream home; this takes away the guesswork of how much you qualify for and strengthens your negotiating position with the seller. Tell your lender if you are interested in a condo or a freehold house, because this will affect the amount you qualify for.
C Conventional or high-ratio –The amount of your down payment determines whether yours is a conventional or high ratio mortgage. High risk loans require that you buy mortgage insurance (mostly from the CMHC) to protect the lender if you don’t make your payments, so you’ll have to allow for this added expense.
D Down Payment – You’ll need to have money available for a down payment when you ask your lender for a mortgage. The larger the down payment, the smaller the mortgage and the less interest you’ll pay in the long run, and the less of a mortgage insurance (CMHC) fee you will have to pay.
E Equity – The value that’s present in your home; this amount is generally represented by the current market value, less any outstanding loan amounts.
F Frequency – You can chose to repay your loan weekly, bi-weekly or monthly. How often you pay your mortgage can have a significant impact on how fast you build equity and retire your loan.
G Government programs – Under certain conditions, first time home buyers can withdraw RSP funds to use as a home down payment; the money can be used without tax penalty if the funds are replaced within a specified time period.
H How repaid – the method of loan repayment can also have a significant impact on what a loan ultimately costs you; open mortgages have better pre-payment privileges, but a closed mortgage may offer a better interest rate.
I Interest rate – The interest rate is of vital importance, it determines your payments and you’ll also need to establish whether that interest rate is fixed or variable
There are other factors to consider too, such as refinancing, repayment penalties and more. If you have questions on this subject, lets schedule a time to discuss it in detail. There are many mortgage options available to you. Through my connections, I can offer creative financing solutions that you may not have ever considered. Why wait? It could be the best call you’ll ever make!
