So, you’re thinking about buying your first home – this is a very exciting time! You might be starting a family, planning to take on a fixer-upper, or maybe you just want a space of your own (finally). But how do you know which type of mortgage is right for you?
We’ve compiled some scenarios to help you determine which mortgage might fit your needs. However, due to the ever-changing nature of the mortgage industry, and the various options available to home buyers, it is important to seek the advice of a trusted mortgage expert.
I plan on living in my new home for more than 5 years, I’m not in a rush to pay off my mortgage, and I don’t foresee the need for flexible terms.
Most first time buyers opt for a closed, fixed rate mortgage as their income may not allow for them to take on any risk. With a fixed rate mortgage, your payment terms remain the same despite interest rate fluctuations meaning you benefit from a consistent monthly payment which simplifies personal budgeting.
A no frills mortgage could also be an option, which provides a very low interest rate in exchange for smaller prepayment privileges, 30-day closing deadlines, and other restrictions.
However, life happens! The restrictions and penalties associated with a no frills mortgage may not be an issue when you first buy your home, but could pose a problem down the line.
I want to buy a house but there’s a chance my job could transfer me/I might be moving/we will be expanding our family in a couple years.
In this scenario, portability, or the ability to move your mortgage to a new property without penalty, is important to you.
With a portable mortgage, your current interest rate is retained should you decide to sell your home and buy another. A portable mortgage has an interest rate at (usually) a few tenths of a percentage more, but you are paying for that added flexibility.
I’m in a position to pay off my mortgage in a very short amount of time.
An open mortgage might be the right mortgage for you. An open mortgage is available in shorter terms (such as 6 months) and allows you to repay the mortgage at any time, without penalty. The downside is that the interest rate is higher.
Some questions to consider asking your mortgage expert…
- How much extra can I pre-pay each year?
- What payment frequencies do you have? (i.e. weekly, bi-weekly, monthly, etc.)
- How is my mortgage compounded?
- Can I break my mortgage at any time?
- Are there refinancing restrictions?
- If I sell my house can the buyer assume my mortgage?
- Can I skip a payment if needed? How do I do that?
Establishing a positive relationship with your bank or credit union is one of the best things you can do. The more they get to know you, the more comfortable you will feel relying on their advice and the more they can customize products to suit your needs.
Purchasing a home is one of the biggest financial investments of your life! Hopefully this guide gives you a better idea of the type of mortgage that will work best for you.
Get in touch with one of Copperfin Credit Union’s friendly and knowledgeable mortgage experts to start making your dream home a reality!
Homeowners, what kind of mortgage did you opt for and why? Comment below.