When it comes to mortgages, there is a common misconception that a low rate is more important than any other factor. However, while your rate does matter for your mortgage, it is not the only consideration.

Other key factors you should look at beyond the interest rate include:

Term: The term refers to the length of time the options and interest rate you choose are in effect, including penalties.  Choosing a duration that matches the market and your goals is important to review.

Amortization: The length of time you agree to take to pay off your mortgage determines how the interest is amortized over time. This impacts how much your mortgage payments will be and how much interest you’ll pay over time.

Payment Schedule: You can make your mortgage payments weekly, every two weeks, or once a month with a few nuances.  The frequency combined with the amount you pay will affect your cashflow and interest paid depending on your choice.

Portability: You can transfer your mortgage to another property with little or no penalty with some lenders.  Mortgage loan insurance can also be transferred to the new home or insure a mortgage switched to another lender.

Pre-Payment Options: Pre-payment terms refer to making extra payments, increasing payments, or paying off a mortgage early without incurring a penalty.  These can greatly affect the amount of interest you pay over time.

Penalty Calculations: Where variable rates typically come with a three-month interest penalty, a fixed rate mortgage penalty is calculated using an Interest Rate Differential (IRD).  This is basically the difference in interest for the remainder of the mortgage term between what is owing and what the lender can earn on a new mortgage for the same period.  However, the calculation has a few nuances slanting in the lenders favour in some cases and can be much higher than a Variable Rate penalty if rates have dropped.

Variable versus Fixed:  For variable rate mortgages the interest rate fluctuates with market rates.  For fixed rate mortgages, the interest rate does not fluctuate over time.

Open versus Closed: An open mortgage allows you to pay off your mortgage at any time with no penalties. A closed mortgage, typically has lower rates but associated penalties to break the term early.

When considering your mortgage, the above components all have a part to play in your overall mortgage.

Contact me to discuss your goals and opportunities regarding mortgage selection, I am always happy to help.

Adapted from DLC Marketing