Low interest rates may have you thinking about taking on more debt: the cost of a new home, moving up to a larger home or refinancing your existing home.
If so, knowing what’s what with mortgages can save you money now and in the future. To get you going, here are some of the mortgage basics you should know.
Rate-ability – The interest rate for a variable rate mortgage is usually lower than that for a fixed-rate mortgage but:
A fixed-rate mortgage locks in your interest rate for the full term so you have the security of knowing your monthly payment will remain the same.
The interest rate of a variable rate mortgage is tied to various fluid market conditions that can increase your interest rate and mortgage payments at any time.
Flexibility – A flexible mortgage usually includes the ability to change your payment frequency, increase the amount of your regular payments, or apply an additional lump-sum payment each year without a fee – meaning you can pay off your mortgage faster and save on interest costs.
Portability Mortgages usually have an amortization period of 25 years and a locked-in term of five years – however life is not always that “typical”. A new job, new family member or any of life’s other unexpected events can lead to the need to move to a new home. A portable mortgage gives you the option of moving your current mortgage from one property to another (generally subject to a property appraisal).
Assumability – Another mortgage feature to consider if you intend to ‘move on’. In the event that you need to sell your property before your mortgage maturity date, an assumable mortgage allows you to transfer your mortgage term to the new property owner (subject to standard credit approval) – thus saving on prepayment charges.
Re-advance-ability – A re-advanceable mortgage allows you to re-borrow, or ‘re-advance’, the paid-down portion of your mortgage, up to the original registered mortgage amount. This cost-saving feature can save you money on the legal fees that are normally associated with a traditional mortgage refinance.
There is never a bad time to look closely at your mortgage options – especially when you work through them with your professional advisor to ensure you’re getting the best mortgage for your unique situation.
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.
