CHOOSING A MORTGAGE

Choosing a mortgage is one of the most important steps in becoming a homeowner and can have a long-term impact on your financial prosperity. But there is no onesize-fits-all approach, said Teddy Kyres, mortgage specialist at BMO.

“A mortgage broker can definitely help guide you in your decision depending on your financial situation, character, and what your goal with the property is,” he said. “You have to evaluate what the different options are; there’s no right or wrong.”

In Canada, the bulk of first-time buyers opt for a five-year fixedrate mortgage, but it’s important to learn about and understand the details of fixed and variable mortgages — the two basic types available in this country — and the terms available before making your choice.

A fixed mortgage product is based on a fixed contract; you are locked in to a given rate and protected from rate fluctuations or increases, regardless of fluctuations in market interest rates. A variable mortgage rate is tied to a specific reference rate, and is subject to change.

“The decision to select a fixed or variable mortgage is a matter of personal preference based on income, lifestyle and risk tolerance,” said Jean-François Laurin, regional director, Eastern Canada, mobile mortgage specialist at TD.

“Some customers prefer knowing that their mortgage rate will not change for the duration of the term, while others are open to potential rate fluctuations in return for rates that are traditionally lower than fixed rates.

“Picking the right mortgage is just as important as choosing the right home. Look at your choices for the term, interest rate, repayment schedule and other flexible features, and then, with a specialist, pick a mortgage that works for you.”

A key question to consider that can help determine which type of mortgage is best for you: Are you comfortable knowing that interest rates can change?

“For clients who are risk averse, fixed rate mortgages are typically recommended as they provide peace of mind and stability,” Laurin said. “However, this certainty usually comes at a financial premium.”

The Bank of Canada raised rates for the first time in years in July, and did so again at the beginning of September. Some economists say it’s possible the institution will raise them again in October, though it’s unclear at this time.

“It’s important to know that if you’re looking to buy a property in the near future, you can go get preapproved for a mortgage and lock in a rate to avoid paying more later on,” Kyres said. “But rates are still very low from a historical perspective.”

Moreover, this type of rate increase is actually a positive indicator for the country, he said.

“This is a normal economic cycle and a healthy sign that our economy is doing well. Good rates will still be available, and working with a mortgage specialist will ensure you get the best rate and term for your situation.”

In addition to seeking preapproval and learning about which type of mortgage best suits your needs, a mortgage specialist can also help with the following: Building a practical budget.

It’s critical to understand what you can truly afford, and what you’re comfortable with. Deciding on a down payment.

“The larger the down payment, the less you’ll need to borrow, which saves money in interest payments over the long term,” Laurin said. “With a larger down payment buyers may also qualify to save on mortgage insurance premiums upfront, so if homeownership is a goal, start saving up now.”

Preparing for the costs. In addition to ongoing costs like mortgage payments, property taxes, maintenance and utilities, it’s important to understand all upfront costs beyond your down payment. These include things like property assessments and surveys, home inspection fees, land transfer taxes, notary, legal and title insurance fees, prepaid property tax and utility adjustments, and moving costs.

“Even before hitting open houses, talk to a mortgage specialist to understand all of these elements,” Laurin said. “Buying a home is one of the largest purchases you will ever make and it’s important to work with a financial institution that you know and trust to ensure that you’re getting the right customer service and advice, in addition to a competitive rate.”