Are you searching for the best mortgage for your needs and budget? When purchasing a home, you will need a mortgage that works for you. Luckily, various options are available. Still, choosing the best one for your situation involves researching and shopping for the best deal.
Fortunately, at Northwood Mortgage in Toronto, we can help you successfully navigate the process.
How do you choose the best mortgage?
Selecting the best mortgage begins with becoming familiar with elements comprising a mortgage contract to determine how various mortgages can impact you financially. Remember, mortgages are not a one-size-fits-all solution.
When selecting something that you will be locked into for months to years, you must consider many variables. Each will directly impact your finances differently, including the following factors:
Variable rate or fixed rates?
Both mortgage types have advantages and disadvantages depending on your objectives and the economic market. Fixed-rate mortgages contain monthly payments and rates that remain the same for your entire mortgage term. Market fluctuations do not affect fixed-rate mortgages.
While this mortgage type may sound incredible, some disadvantages do exist. Fixed-rate mortgages may cost you more over time if variable rates decrease. This type of mortgage is for people who value security and want to know the exact monthly budget amount. This mortgage type is thus a “safe” risk.
Comparatively, a variable-rate mortgage fluctuates with market changes since they are tied to a lender’s prime interest rate. This rate is the standard lending rate that financial lenders provide. While it is advantageous when rates are low because it can save you money on monthly payments, when the prime rate rises or falls, your monthly payments/mortgage rate may, too.
Variable-rate mortgages are an excellent choice if you don’t mind higher risks or know where the market is going. When fixed rates climb, variable rates become lower and more lucrative.
Selecting the Best Mortgage Term
Various terms are available for mortgages. While the standard is a five-year term, you can go as low as six months or as high as ten years. Mortgage terms are defined as lengths of time that homeowners commit to remaining with the lender in addition to the conditions and terms outlined in the loan.
When the term ends, you can renew the mortgage based on the outstanding principal and use a new rate. You can also look to other institutions for a better deal. Longer terms are best if you want to lock in great interest rates and terms for longer. Shorter terms permit greater flexibility but less protection if rates rise during the term.
Historically, short-term mortgage rates are lower when compared to long-term mortgages. The length chosen will depend on how comfortable you are with risk and how long you intend to remain in the home.
Know How Long It Takes to Pay Your Mortgage
The term is not the same as amortization. An amortization period is the time it takes to pay off the mortgage. You can choose from five to thirty years (only with a 20% down payment).
The shorter the amortization, the higher the payments. However, you will pay fewer interest fees.
Know What You Can Afford
It would be best to be realistic when determining what you can afford. Despite the loan size, you need room for rising rates, as they can happen. You will thus require a buffer in case they do.
Even if rates are continuous, you may need to consider the impact on your savings, especially for retirement. Borrowing the total amount can lead to financial strain.
Contact Northwood Mortgage in Toronto
Our professionals will review your financial situation and goals for a suitable mortgage. We will outline the risks associated with each type of mortgage and find one that suits your budget.