What type of mortgage is best for you?

Bottom line:  Not all mortgages are the same and having the right mortgage for you can make your house feel more like a home – more comfortable and secure. 

Let’s assume that your immediate need is a home purchase, or even renewing a mortgage; How do you decide what type of mortgage is best for you? 

Here are a few questions to start with: 

1. How knowledgeable are you about mortgages?
2. What are your borrowing goals?  Or the ability to pay down your mortgage as fast as possible?
3. Do you think you can make extra payments against your mortgage each year?
4. Are you someone who almost never follows interest rates, follows them occasionally, or very closely?
5. Do you know the impact of an interest rate increase on your payments?
6. How would you cope with high payments?
7. How long do you plan to stay in your home?  Less than two years?  Three to five years? Longer?

Depending upon how you answer each of these questions determines which type of mortgage and term may be best suited for you.  If you have a reasonable level of knowledge and you have some awareness of interest rates and room in your cash flow to cope with increasing (or fluctuating) interest rates, then you may want to consider a short-term or variable-rate mortgage solution.

If you think you have a lower risk tolerance, in that you could have difficulty with increasing rates and if you expect to live in your home over the long term, then a longer-term fixed-rate mortgage might let you sleep better at night.

There is one way to get the advantage of a variable-rate mortgage with an interest rate that moves with prime rate, but without all the exposure to a potentially risk rate environment:  ask you lender if their variable rate mortgage has protection from rate spikes with a cap that sets a maximum interest rate you’ll pay.  This type of mortgage allows you to get a mortgage rate float with the prime rate, but which protects you from big interest-rate increases, and the resulting higher payments.

Whatever you do, don’t let rate alone determine which mortgage you choose.

It really is in your best interest to assess mortgage features against price.

Make sure you get good value.

Always be an informed client.

For more information contact your Toronto Mortgage Broker at 416-920-9931