When it comes to customizing your mortgage to fit your needs and goals, several aspects can be adjusted.

Interest Rate Type

The interest rate is a major component of your mortgage and can be fixed or variable.

A fixed-rate mortgage is ideal for those who are more comfortable with a stable monthly payment.

A variable-rate mortgage is ideal for individuals who have room in their budget for payment increases and who want to take advantage of potential interest rate drops should they occur.  Fixed-payment variable rate mortgages are also available but if rates rise considerably, the payment may increase with this type of variable rate mortgage as well.

Penalties to break fixed rate mortgages can at times be much higher than those of variable rate mortgages.

Amortization

Amortization refers to the number of years over which your mortgage payment is calculated to be repaid and is often set to 25 years.  Shorter amortization terms result in higher payments, but they allow you to pay less interest over the lifetime of your mortgage.  Longer amortization periods come with smaller monthly payments but higher interest costs.

Payment Schedule

Mortgage payments can be made monthly, bi-monthly, bi-weekly, or even weekly payments.  Paying every two to four weeks on a specific day of the week accelerates repayment by years in some cases and can save you considerably in interest.

Mortgage Term

A mortgage term refers to the length of time your rate and current mortgage terms are set.  When the term is up, you can renegotiate your mortgage and reset your rate type and term options without paying a penalty.  You can switch lenders at this time as well if you wish to secure a better rate and terms at that time.

Open vs. Closed

Open mortgages have a higher rate of interest but give you the option to repay the entire loan without a penalty. Closed mortgages come with lower rates and often allow for lump sum payments to reduce the loan amount without penalties.  However, repaying the entire loan before the term is up is not an option.

High Ratio vs. Conventional

High-ratio mortgages are insured in favour of the lender for borrowers with less than 20% down.  The borrower pays the mortgage insurance premium as part of the mortgage amount rather than paying for it up front.  Rates are lower on these loans, but the premium increases the overall cost.

Conventional mortgages are uninsured, saving the borrower the premium, but a 20% down payment is required.

For a closer comparison of options please don’t hesitate to reach out with your questions, I’m always happy to help.

Adapted from DLC Marketing

Photo Credit: Luwadlin Bosman Unsplash