| Exploring Your Mortgage Options
With so many new mortgage features being introduced in the Canadian marketplace, the choices for consumers are immense. Perhaps the most stressful part of house hunting is figuring out how much you can afford and what mortgage option is right for you.
For decades the formula used to be simple:
- Monthly mortgage payments, including taxes and insurance, should not exceed 28% of your gross pay
- All your loans, including your mortgage payment, should not exceed 36% of your gross pay
Today, lenders rarely use this cookie-cutter method. Some focus more on how much of a person's monthly income goes toward paying off debt. Some do not use ratios at all.
Borrowers, however, should play it safe - stick to the decades old formula, even if it means scaling back expectations. Do not assume you should take all the money a lender is willing to loan you. Instead, assess your financial situation, make a budget and decide how much you can afford each month.
Some Current Mortgage Options
- Fixed Rate vs. Variable Rate Mortgages
With a fixed rate mortgage, the interest rate stays the same throughout the term of the loan, providing a measure of stability that some prefer. A variable rate mortgage can allow the borrower to take advantage of low rates, as it typically has an interest rate that is calculated on an ongoing basis at the Bank of Canada prime lending rate minus a set percentage.
- An Open or Closed Mortgage?
Open mortgages allow the borrower to prepay, renew, or refinance at any time before maturity without penalties. A closed mortgage, on the other hand, usually allows for a set percentage of the principal to be prepaid without penalty. A closed mortgage may also be renegotiated or refinanced in most cases with the payment of a penalty which varies from lender to lender
- High-Ratio Mortgages
While a conventional mortgage is a loan for up to 80% of the purchase price of a property, a high-ratio mortgage allows you to borrow up to 95-100% of the purchase price. This type of mortgage must be insured.
These options are just a starting point - call today to find out which mortgage best meets your individual needs and objectives. |
