Mortgage Smart Tip for Canadian First Time Home Buyers – Mortgage Products

Buying your first home can be a daunting process including figuring out the right mortgage and options for you.  One part of this is knowing about what Mortgage Product to select.  Here let’s talk about its definition and what it really means, the options available and how do you choose the right one for you?

Definition:  Refers to the mortgage features offered

 

Options:  Here are some examples:

       Variable Rate Mortgage – where the interest rate charged on the mortgage will change based on the Prime Rate and the discount you have received.  A variable mortgage can have a;

ü  Variable Payment: where the payment amount changes each time there is a change to the prime rate.  The discount amount does NOT change.  e.g. your rate is prime minus 0.55% and so if prime is 3.00% results in 2.45% but if prime rate increases to 3.25% then the interest rate charged and payment amount goes up to 2.80%

ü  Fixed Payment: where the payment amount is set on closing at a fixed amount and will NOT increase unless notified by the lender; e.g. rate is prime minus 0.55% and so if prime is 3.00% results in 2.45% but the payment is set based on say a 6.0% rate.  When the actual rate you are being charged is less than 6.0%, more of your payment is going to principal and saving you unnecessary interest

ü  Capped Payment: where the payment amount does change each time there is a change in the prime rate, but it is guaranteed not to exceed a certain amount

ü  Capped Interest Rate: where the interest rate is based on prime rate BUT is guaranteed not to exceed a certain percentage

       Fixed Term Mortgage – a mortgage where the rate and length of the mortgage is fixed and will not change

       Cash Back Mortgage – where there is a % of the mortgage amount given to you on closing that may be used for down payment, closing costs etc.  Ranges from 1% to 7% or more of the mortgage amount

       Purchase Plus Improvements – where you can roll the cost of any improvements you plan to do on the home into your mortgage (see our Mortgage Smart Tip)

       Convertible Mortgage – where the term is short, maybe 6 months, and you have the option at any time during this period to convert to a longer term mortgage or different product with no penalty, as long as you remain with the same lender

       Combo or Multi Part Mortgages – where you can select different types of mortgages and terms, where instead of one single mortgage, you have as many as 99 different parts.  This is great if you can’t decide whether to go fixed, variable, open, or closed, or even a line of credit…. Why not do them all!  This mortgage is also re-advanceable

       Secured Lines of Credit – even though it isn’t called a mortgage, it acts like one as in it is registered on your property title as a loan.  The interest rate will be variable based on the prime rate, with minimum payments of interest only so the lowest possible monthly payment you can have.  It is also completely open and can be paid off in full with no penalty.  The rate may be higher than a regular mortgage and is based on the prime rate like a variable mortgage.

So how do you select the right one for you?

       Determine which products you qualify for, and then;

       Select the product that best meets your need to have a fixed payment or a changing payment each month

       Ask yourself if any of these products appeal to you and meet your needs

       Consider all the features of each product to see if again, they meet your needs of not only budget, but how long you will stay in the home

       I’ll walk you thru how each product does, or maybe does not meet your needs to help you select the right one for you!