Mortgage rates are low right now, but if recent reports are accurate, they may be going up sooner rather than later.
While a low interest rate is always good, there are other important factors you should consider before signing on the dotted line.
Flexible mortgages – Look for one that includes the option of changing payment frequency, or increasing the amount of your monthly payments without a fee. By making accelerated and/or lump-sum payments you’ll pay off your mortgage faster and save on interest costs. Mortgage lenders usually allow a yearly lump-sum payment of up to 15 per cent of the original principal amount.
Portable mortgages – Mortgages usually have an amortization period of 25 years, with a typical term of five years, but you can get one that offers the option to move that mortgage from one property to another. If you think your new home will not be your last home, mortgage portability is an option you should consider.
Assumable mortgages – Another mortgage option to look for if you intend to ‘move on’ is assumability, which allows you to transfer your existing mortgage to the new owner of the property you’ve sold. This can save on prepayment charges for ending your mortgage before it matures.
Re-advance options – This option allows you to obtain a ‘re-advance’ of funds up to the original registered amount of your existing mortgage.
Beware of ‘low rate’ promotions – Advertised promotions for low mortgage rates often come with strict repayment options, and steep repayment charges if you need to exit the mortgage term prior to its maturity date.
Cash back mortgages – These mortgages offer a cash rebate (usually three to five per cent of the principal) but if you don’t stay with the lender for the full amortization term, the cash back amount may need to be repaid, either in part or in full.
Don’t jump into a mortgage. Instead, work through your mortgage requirements with a professional advisor and legal advisor to ensure you get the best mortgage product for your financial needs.
Andy Erickson is the division director with Investors Group, Vernon. This article is provided for information purposes only. Please consult with a professional advisor before implementing a strategy.
