To get a good deal on buying a home or property, it is important to choose the mortgage that best suits your needs.
When shopping for a mortgage, it's crucial to understand some of the options and features available to you:
Amortization period versus mortgage term
The amortization period is the length of time it will take you to pay off the mortgage in full. If your down payment is less than 20 per cent of the purchase price of your home, the longest amortization period allowed is 25 years. The longer the amortization period, the lower your payments. However, keep in mind that the longer you take to pay off your mortgage, the more interest you will pay over time.
The mortgage term is the length of time your contract is in effect. It can range from a few months to five years or more. At the end of each term, you must renew your contract, unless you are able to pay your mortgage off in full.
If you want to renegotiate your mortgage agreement or pay off your mortgage in full before the end of the term, you may have to pay a prepayment penalty. The amount of the penalty depends on your type of mortgage and the terms of your mortgage agreement.
The renewal of the contract is a good opportunity to re-evaluate your needs in order to choose the mortgage that suits you. You do not have to renew your mortgage with the same lender. You can choose to deal with another lender if their terms better suit your needs. Check with your lender to find out if there are any costs associated with such a transfer before you begin the process.
Fixed versus variable interest rates
Fixed interest rates do not change over the term. This may be better for you if you prefer to pay the same amount throughout the term of your mortgage.
Variable interest rates may increase or decrease over the term. This means that it’s possible to get a lower rate when you renew, depending on the market. But, it’s also possible that the new rate could be higher.
Before taking out a mortgage, find out about all the terms and conditions set by your lender and carefully assess your needs in order to choose the mortgage that is right for you.
Find more information at canada.ca/money. (NC)