Types of Mortgages
There are three general types of mortgage products. Regardless of what you are using the mortgage for (purchasing a new home, mortgage refinancing, etc) or what specific program you qualify under, your mortgage will always be a variable rate mortgage (sometimes referred to as adjustable), fixed rate mortgage or line of credit (HELOC).
Variable Rate Mortgages
Variable rate mortgages fluctuate with the banks prime lending rate. The discount off of prime that you receive can fluctuate with market conditions and what each lender is offering at any given time. Today, the lowest mortgage rate for a variable rate mortgage is very appealing and many clients are choosing to go this route. When going with this product however there are some things you need to understand about the product and this is where one of our mortgage brokers can help you out.
Is a variable rate mortgage right for you?
- Do you have room factored into your budget if your mortgage payments were to go up? (How is your rate tolerance?)
- Do you follow the mortgage rates in Canada to know if or when you should lock into a fixed term product? (We have you keep in touch with us for regular updates on what is happening with both the fixed and floating terms when you take a variable rate mortgage with us).
- What would your mortgage rate be if you chose to lock in at some point? Is that discount in line with the lowest mortgage rates available in the market? If it's a certain discount off of the going fixed rate, is it in line with what is being discounted today on that product? (Some lenders offer good discounts off of prime on the variable portion, but don't offer any discount off posted bank mortgage rates should you choose to lock into a fixed term mortgage product; we help you avoid this trap).
Can I switch to a fixed term mortgage during my term?
Yes you usually can; most lenders offer a policy whereby you are able to lock the mortgage rate in to the going fixed term rate which is at least as long as the term you have remaining. This takes some of the risk out of the product.
What is the biggest risk to the product?
There are really 2 things to be aware of when you take a variable rate mortgage. First off, you must pay attention to what is happening with the prime lending rate. We advise all clients that work with us to keep in touch regarding the prime lending rate should they choose this product. Secondly, you always want to be sure that you know exactly what you are getting should you choose to lock the mortgage in at some point down the road. Some banks will only offer you posted rates, others a small discount off of the posted rates. Working with a Canada mortgage broker who knows their lenders and their products is very important to getting the lenders 'fully discounted' mortgage rates should you lock in is a must to this product. This is the most critical point in shopping for a variable rate mortgage.
Fixed term loans are those which have mortgage rates that are locked in for the full term of the loan. When you shop for a fixed term mortgage product, the biggest differences will come in the interest rate and pre-payment privileges. We offer the best mortgage rates in Canada today. We have terms as short as 6 months and as long as 25 years, and we can work with you to find the right term based on your specific situation, one size does not fit all! We compare mortgage rates from 50 different lenders to get you the lowest mortgage rates in Canada. We also think ahead to the end of your term and try to put you with lenders that will offer you their best mortgage rates at the time of your mortgage renewal as well.
Can you make extra payments on a fixed term mortgage?
Yes, usually you can unless its specified specifically in the mortgage document. A typical prepayment privilege would be 15 to 25% increase in your monthly payment per year as well as a 15 to 25% lump sum payment per year. This allows someone to be very aggressive with a mortgage and pay it off quite quickly. If you want to pay more than the amount allowed or pay the mortgage off in full, you will be required to pay a penalty to get to out of the mortgage. This penalty is usually 3 months interest or the interest rate differential.
Our HELOC Mortgage (home equity line of credit) is the next generation of mortgage, a hybrid of sorts. Within your HELOC you can hold fixed terms, variable rate terms and lines of credit individually or all at the same time! You can also have multiple fixed or variable rate terms for accounting purposes.
Want to borrow some money to invest, buy a car or send the kids to school? Can't decide between a long or short term mortgage, do both! The HELOC is not just a mortgage, it's a valuable tool in your overall financial plan!