In recent years the number of mortgage options has grown dramatically.
Don’t be confused
Here at Best Mortgages Vancouver, our Mortgage Specialists can help you find the best product for your needs and negotiate you the best rate. We do the research for you, enabling you to avoid the frustration and confusion of having to do it yourself. We explain all the available options. To arrange for one of our mortgage specialists to give you a call fill out our online contact form or you can reach us directly at 604-899-2188.
Some of the options to consider are:
- closed vs. open mortgages
- fixed vs. variable rates
- payment options
- pre-payment options
In a closed mortgage, the interest rate is locked in for the full term of the mortgage and you will usually be charged a penalty if you pay off this type of mortgage early. This is known as an early payout penalty, which goes to the mortgage lender. If you want to renegotiate the interest rate or pay off the balance prior to the end of the term.
Closed mortgages are usually the better choice for buyers who suspect that interest rates may be on the rise, or for those who are not planning to move in the short term.
Interest rates for closed mortgages are generally lower than for open mortgages. First-time buyers are often more secure knowing exactly how much their mortgage payments will be over a set period of time. Closed mortgages are generally available in a full range of terms from six months to 25 years.
Open mortgages offer greater flexibility than closed mortgages. They can be repaid either in part or in full at any time without payout penalties.
Open mortgages are a good option if you are planning to move in the immediate future or if you believe that interest rates are going down. Interest rates for open mortgages are generally higher than for closed mortgages because of the added flexibility.
Fixed Rate Mortgage
The interest rate for a fixed rate mortgage is locked in for the full term of the mortgage. Payments are set in advance for the term, providing you with the security of knowing precisely how much your payments will be throughout the entire term. Fixed rate mortgages can be open (may be paid off at any time without breakage costs) or closed (breakage costs apply if paid off prior to maturity).
Variable Rate Mortgage
With a variable rate mortgage, mortgage payments are set for the term of the mortgage, even though interest rates may fluctuate during that time. If interest rates go down, more of the payment is applied to reduce the principal. If rates go up, more of the payment is applied to payment of interest. Variable rate mortgages may be open or closed.
A variable rate mortgage provides you with the flexibility to take advantage of falling interest rates and to convert to a fixed rate mortgage at any time.
Interest Only Mortgages
Generally, we encourage our clients to make every effort to pay off their mortgages as quickly as possible so that they can save money on their interest costs. However there are some cases where it may make sense to get an interest only mortgage.
By paying only the interest on your mortgage, you can reduce your monthly mortgage payment. You will have more funds available for other needs. Redirecting money that would have gone toward paying principal on your mortgage may complement your overall financial plan and potentially help you grow your wealth.
An interest-only financing solution can allow you to:
- Take advantage of potential tax deductions
- Manage unforeseen expenses
- Repay higher cost, non-deductible consumer debt
Some other options to consider:
Weekly, bi-weekly, semi-monthly or monthly payment plans are available depending on the mortgage you choose. Terms of six months to five years with amortizations up to 25 years give you complete flexibility in lifestyle planning.
This allows you to pay addition amounts over and above your regular monthly payment without incurring any penalties.
Depending on the lender, it can include lump sum payments of between 10 and 25% of your principal. This could include doubling your monthly payment. All these additional payments go directly to the principal. These pre-payments can result in a significant savings over the life of a mortgage.
This option lets you transfer the interest rate and all the existing terms and conditions of your current mortgage to your new home. You will be subjected to a credit review and property appraisal when you make the new home purchase. You may also qualify to add-on to the mortgage if you require a larger mortgage amount.
Depending on current rates and your final blended rate with the add-on, your modified monthly payments could be more economical than they would be getting a new mortgage.
By “porting” your mortgage, you automatically avoid any prepayment charges for breaking your mortgage early.
There is no charge for using this portability option. Legal fees would apply to register the mortgage on your new home.
The mortgage portability option cannot be used in combination with the assumable mortgage option.
You can use this option to offer your mortgage to a prospective buyer. If he/she qualifies for the mortgage, they can take it over with the purchase of your home. Allowing your buyer to assume your mortgage, particularly if it’s a low-interest, longer-term mortgage, is a good tactic in a buyer’s market, especially when mortgage rates are rising.
When there are more homes for sale than potential buyers, an attractive mortgage rate can help boost the appeal of your home and swing a sale in your favour. If rates are on the rise, your low-rate mortgage gives your buyer built-in monthly savings until the end of your mortgage term.
Assumable mortgages are an option if:
- Your buyer assumes your mortgage, you can be relieved of all responsibility related to its fulfillment.
- Your buyer assumes only a portion of your mortgage. Then you may be required to pay a prepayment charge on the unassumed balance.
- Your buyer needs an amount that’s higher or lower than your outstanding mortgage balance. Here’s what happens:
- A higher amount is required, the buyer can apply to Add-on to the existing principal balance.
- The buyer needs less than your outstanding mortgage balance, the amount required is transferred to the buyer and you pay off the difference. The balance that has not been assumed may be subject to prepayment charges.