Tuesday, October 29, 2013

Mortgages in Canada

Did you know Canada..  we all know that deciding to get a mortgage is probably the biggest
financial decision you will ever make yet it's still a gray area for a lot of first time home owners.  Before you get a mortgage or change or renew one, it is important to do some research and be informed in order to get the mortgage that best suits your needs.

One of the first steps is to look into Canadian mortgage rates and compare different lenders, don't just walk into one bank and be done with it.  You also need to know if you want an open or closed mortgage - the difference between the two boils down to the amount of flexibility you have in making extra payments on the principal or in paying off the mortgage completely. These types of extra payments are called prepayments.

Open mortgages allow you to make prepayments whenever you want. Closed mortgages often include prepayment privileges, which give you the option to make prepayments up to a certain amount.  By making prepayments, you can save thousands of dollars in interest charges by paying down your mortgage faster but the interest rate on a closed mortgage is usually lower than on an open mortgage with a comparable term length.

Looking into mortgage rates and using online calculators to review possible monthly payments is a good way to see what purchase price on a house you can afford.  Remember, you also need to have a down payment ready - the minimum down payment is at least 5% of the purchase price and in some cases even more.

Speaking of rates, you need to know if you want a fixed, variable or hybrid interest rate.  With fixed you will know in advance the amount of interest you will have to pay; with variable the interest the rate can increase or decrease during the term and some lenders offer "hybrid" or combination mortgages—part of the mortgage is financed at a fixed rate and part is financed at a variable rate.

You may not know that mortgages don't have to be paid once a month, there's also semi-monthly, biweekly, weekly and accelerated options.  Accelerated weekly and accelerated biweekly payments can save you thousands, or even tens of thousands in interest charges, because you'll pay off your mortgage much faster using those options.  The reason is that with the "accelerated" options, you make the equivalent of one extra monthly payment per year. Regular weekly and biweekly options do not provide the same benefits.

A lot to consider and research to discover the value of the mortgage you can afford should be your first thoughts before you go house shopping!


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