Do you have the best mortgage for you?

Features of a good mortgage

FINDING THE right mortgage type for you might seem challenging. But, consider these five factors to help evaluate your current loan.

INTEREST RATE

Your interest rate plays a major role in how much you end up paying for your mortgage loan. A few percentage points’ difference can mean paying thousands more by the time you own your home. You might be paying more money than you should for your loan if you got your mortgage during a time when rates were high.

How can you tell if you can get a better deal on your loan? First, take a look at your current interest rate. You can find your rate on your mortgage statement or your original loan paperwork if you have a fixed-rate loan. If you have an adjustable rate mortgage and are past the fixedrate period, you might need to contact your lender to learn your current rate, as it might change throughout the term.

Inquire with your lender about today’s market interest rates once you know what you’re currently paying. Interest rates change on a daily basis, so it’s important to make sure you’re getting up-to-date information before you decide to refinance.

Compare the current market rate for your loan to what you’re paying now.

• If market rates are lower now than your current rate, you might want to consider a refinance.

• If market rates on your loan type are higher now than what you’re paying, now might not be the best time to refinance.

Market interest rates aren’t the only factor that lenders consider when they calculate your loan’s rate. Here are a few other factors that can influence how much you’ll pay in interest.

• Your credit score: Has your credit score gone up since you got your mortgage loan? If it has, you might qualify for a lower interest rate.

• Your current home equity: The more equity you have in your home, the less money you need to borrow from a mortgage lender. Refinancing after building some equity might give you access to a lower interest rate with a new lender.

• Your current debt and income: Your debt-to-income ratio can affect your interest rate. If you’ve paid down debt outside of your mortgage or your income has increased since you got your loan, you might qualify for a lower rate.

LOAN TERM AND LOAN STRUCTURE (FIXED OR ARM)

Your loan term can also affect how much interest you end up paying. The longer your term, the longer you’ll make interest payments to your lender. This means that loans with longer terms end up being more expensive than short-term loans with comparable interest rates. However, longer-term loans also have a lower monthly down payment. This makes them easier for most people to manage than shorter-term loans.

Sit down with your bank statements and loan paperwork and evaluate whether your current term still works for you. Take a look at how much money you have coming in each month and how your income compares to your monthly payment. If you’re now earning significantly more money than you were when you got your loan, you might want to refinance to a shorter term. Let’s say your financial situation has changed and you now have higher expenses. You can lower your monthly payment by refinancing to a longer term.

Your interest structure can also influence how easy it is to pay off your loan.

• Fixed-rate loans are better if you need a regular, predictable monthly payment. A fixed-rate loan can help you plan ahead more easily if your household expenses take up most of your budget and you don’t have room for changing payments. Fixed-rate loans can also be beneficial if you lock in when market rates are low.

• Adjustable rate mortgages are better if you don’t plan to stay in your home for many years. ARMs start with a fixed interest period. During this period, you get access to an APR that’s lower than the current market average. If you bought a starter home that you plan to move out of before the fixed period expires, an ARM can give you access to lower interest rates. An ARM can also save you money if you plan to pay ahead on your loan early in the term or if experts expect market rates to drop soon.

CASH OUT

The equity you build in your home can be a powerful tool for paying down debt. Mortgage loans offer some of the lowest APRs on the market when you compare them to credit cards and personal loans. The average credit card carries an interest rate that can range from 15 per cent to 27 per cent, while average mortgage rates are below are below four per cent. If you have high-interest debt, you can save money by consolidating what you owe with a cash-out refinance.

A cash-out refinance allows you to tap into your home’s equity. When you take a cash-out refinance, your lender gives you a part of your home equity in cash a few days after you close. In exchange, you take on a loan with a higher principal balance.

For example, let’s say that you have $20,000 in credit card debt you want to pay off. You have a mortgage loan with $100,000 left on its principal balance and $50,000 in equity. If you take a cash-out refinance, your lender gives you the $20,000 you need in cash. After you close, your principal balance will be $120,000.

A cash-out refinance can be a great option if your debt has a higher interest rate than your mortgage. However, you must already have sufficient equity to qualify for a cash-out refinance. Most lenders will only allow you to take 80 per ent to 90 per cent of your home equity out with a refinance. This means if you need $20,000 to pay off debt, you need to have between $22,000 and $24,000 of equity in your home. Contact your lender to learn about how much equity you currently have in your property and whether you qualify for a cash-out refinance.

See how much cash you could get from your home.

FLEXIBILITY

It’s normal to see your financial situation change over time. You might make more money thanks to a promotion or you might budget smarter after having a baby. Getting a lender that’s flexible and willing to work with you at every stage of your life is important.

If your current lender doesn’t offer the flexibility you need, you can refinance with a new lender. Some things to consider include:

• Prepayment penalties: Lenders that hold onto your loan earn less money if you pay off your loan too quickly. If you want to make extra payments on your loan, look for a lender that doesn’t charge you a penalty for paying ahead.

• Biweekly payments: Does your cashflow affect how and when you make your payments? Having the ability to pay biweekly versus monthly might help provide the flexibility your wallet needs to accommodate other living expenses. Make sure you have a lender that enables automatic payments every two weeks.

• Considerations for financial hardship: Anyone can run into financial hardship. Your lender should be willing to work with you and explore your options if you start having trouble making your monthly payments.

YOUR LENDER

The lender you choose is just as important as the type of loan you land on. Does your lender meet the high standards you need them to meet? Ask yourself the following questions:

• How is your lender’s customer service team? You want to work with a lender that offers an amazing, awardwinning customer experience team. Your lender should be easy to contact and should quickly respond to your questions.

• How is your lender’s reputation? Your lender should have a great reputation and plenty of positive community reviews.

• Does your lender have an app? Whether you travel monthly for business or you’re an urban explorer, you probably want to manage your mortgage on the go. Your lender should offer a safe and secure app that allows you to view and make payments anywhere.

• Does your lender offer a wide network of services? Your time is important! It’s often easier to get all of your mortgage services from the same company. Look for a lender that offers everything from mortgage loans to real estate agent recommendations for a simpler mortgage process.

You might want to consider refinancing with a new lender if your current one doesn’t measure up.

SUMMARY

What you need from your mortgage might change over time. Reevaluate your home loan every few years to help ensure that you have the best loan possible.

Start by looking at today’s interest rates and comparing them to what you currently pay. If market rates have fallen, you might be able to lock in at a lower rate with a refinance. Improvements in your debt management, home equity and credit score can also help you get a better interest rate.

Next, look at your loan’s term and structure. You might make more money now so you may want to consider a shorter term. Are you having trouble making your payments? A longer term might be right for you. You can also change from a fixed-rate loan to an ARM and vice-versa. You might need a cash-out refinance if you have highinterest debt or other life events that require additional cash.

Finally, look at your lender. Your lender should offer flexibility. Examine customer ratings, app and service offerings and representative availability so you have the right kind of help when you need it.