Your Morgage Decision
John Scholl of Investors Group Financial Services Inc. & Investors Group Insurances Services Inc. provided me with the article below. He defines the different mortgages quite clearly. He can talk to you further about your mortgage and your finances to make your decision easier and so that you can sleep at night. Read the article and if you have any further questions call John.
Fixed or Variable Rate Mortgage?
“It made me nervous – very nervous.” Financial advisors hear that comment all the time from both first-time home buyers and more seasoned purchasers who may be upgrading or downsizing to a second or even a third home. What makes those folks nervous is finally getting down to signing the mortgage documents that can mean decades of payments for the largest investment most Canadians will ever make. What can add to that nervousness is uncertainty: “Did I choose the right mortgage option?” If you’ll soon be signing on that dreaded dotted line, here is some basic information that can make your mortgage decisions easier and a better fit for you.
Your mortgage options:
Fixed rate mortgages guarantee a set monthly payment amount at a locked-in interest rate for the term you choose, typically one to five years. At the end of that period, you sign for another ‘term’ at the prevailing mortgage rates, which can be higher or lower.
Variable rate mortgages may have a lower initial interest rate than fixed rate mortgages but the interest rate is linked to the Prime Rate and fluctuates with it, which means the rate you pay over the term you select could increase or decrease, affecting your total interest costs and potentially, the amount of your mortgage payment. Some variable rate mortgages are available where the payment amount is fixed for the term, but they are typically subject to certain conditions.
Multi-level or split rate mortgages offer both a fixed and variable component – a rate structure that combines the benefits and risks of fixed rate and variable mortgages – and are growing in popularity.
Your best bet:
Studies have shown that, while a fixed rate mortgage is still the most popular choice, choosing a variable rate mortgage over a fixed rate mortgage can save on interest payments over the long term. But financial experts agree that, when you’re mortgage shopping, it’s a mistake to look solely at interest rates. Your financial and life circumstances can change – in fact, most mortgage holders look to make changes to their mortgage at least once or twice during their term – so you should also consider the ‘features’ of a mortgage, such as the flexibility to make changes to it without incurring significant costs. In particular you should ask the lender if a penalty will apply if you sell your house and purchase a new home with a new mortgage from the same lender.
The keys to the best bet for you are these:
Make your mortgage decision based on your personal financial objectives, your overall plan for your family’s financial future, and the ‘insomnia factor’ (Will your choice allow you to sleep soundly at night?). Your best course of action is to work through all the options with your professional advisor before you sign on the dotted line.
As previously discussed, if you are relatively healthy, never sign up for “Mortgage Insurance” with your lender until you have discussed life insurance with your financial advisor. If you need further encouragement to do so, may I suggest you search for “CBC Marketplace in Denial” on the internet and do a little research about what really happens. The worst aspect of it is the underwriting at the time of claim instead of at the time of the insurance application.
John Scholl CLU,CGA, B. Mathematics, Consultant - Investors Group Financial Services Inc.
& Investors Group Insurances Services Inc.
200 - 24 Queen Street East,
Brampton, Ontario L6V 1A3
Wealth Management & Financial Planning
Phone: (905) 450-2891 X529 Toll Free: 1 (866) 799-2223 x529 Cell (416) 731-3660 Fax: (905) 450-9747