Tag Archives: term

10-Year Mortgage Below 4%

January 23, 2012

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The 10-year term in Canada is pretty rare these days (less than 1% of mortgages in Canada have a term 10 years or longer), but a 10-year term below 4% is unheard-of.  Or, at least it was until last week.

Gone are variable rates with “prime-0.9%” discounts (now they’re hovering right around prime which is currently holding steady at 3%), in are the 10-year fixed rates as low as 3.84%.

With rates pretty much as low as they have ever been, there’s no place for them to go but up.  For a lot of people, locking in for 10-years at under 4% just makes a lot of sense.  Not only does a 10-year term give you peace-of-mind and cost certainty for a whole decade, but it’s less than 1% above prime, and less than 1% above a 5-year term.  To quote Rob Carrick of the Globe and Mail, “It’s like freezing time at the exact best moment ever to finance the purchase of a house.

Now with rates this low (especially the 5-year 2.99% “specials” floating around), you’re going to want to make sure to read the fine print.  A lot of these specials are filled with restrictive contracts (can’t break the mortgage early, low pre-payment options, etc.).  As always, my advice is to get in touch with your favorite mortgage broker – we can help walk you through the various options out there, and help you decide the best one for you.  Some people wouldn’t want to be locked in to a mortgage for 10-years, while others would sleep better at night knowing their mortgage payments will be exactly the same until 2022.  😉

Tim

Tim is a mortgage agent in Barrie who specializes in helping first-time home buyers. He works with a variety of lenders and can help customize a mortgage with the best rates & options that fit the needs of each customer.

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The Best Mortgage Rate is Not Always the Best Option

January 9, 2012

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In the mortgage world, there’s always a lot of talk about rate.  What’s the current best 5-year rate?  What’s the best rate I can get?  What’s the best rate you offer?

While rate is definitely an important part of the mortgage equasion (and we discussed a while back why term is also important), sometimes the “extras” that comes with different mortgage products can be worth a lot more than that extra 0.1% rate savings.  But when you actually do the math, a 0.1% savings on a typical 5-year mortgage is less than $15/month (which is less than $1,000 over the term of the mortgage).  Just one of the below extras could easily offset this savings:

  • Early payout penalties (especially important if there’s a chance you may have to break your mortgage early)
  • Low pre-payment penalties
  • Missed payment flexibility (some lenders will allow you to skip payments every once and a while if money is tight)
  • Portability (can save you a lot of money if you move to a new home mid-term)
  • Cash back (sometimes cash up-front to pay off high-interest debt is a better choice than a lower rate)
  • Pre-payment privileges (pre-payment privileges vary from lender to lender – if you plan on paying more on your mortgage than your regular payments, this can be an important part of your mortgage planning)

Different lenders come out with a variety of “extras” like the ones above that can make rate a little less important.  Obviously, with all things equal, a lower rate is better.  But sometimes, rate is not the be-all and end-all when it comes to deciding what best mortgage product is for you.  Have a qualified mortgage professional evaluate your current mortgage needs.  Once we understand your mortgage requirements, we can then help get you set up with the mortgage product that makes the most sense for you.

Tim

Tim is a mortgage agent in Barrie who specializes in helping first-time home buyers. He works with a variety of lenders and can help customize a mortgage with the best rates & options that fit the needs of each customer.

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The Cost of Borrowing

October 3, 2011

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With the emergence of the Internet over the past couple of decades, more and more consumers are playing an active role in “rate shopping” for their mortgage.  Unfortunately, the “best rate” doesn’t always equal the best mortgage – there’s usually a big difference between the lowest rate and the lowest total cost of borrowing.  In fact, the interest rate is just one of the many factors that determines your total cost of borrowing.

There are numerous things that can turn a low rate into a high cost of borrowing:

  • Poor term selection (eg. in most cases, getting 3.39% on a five-year term will be better than getting 3.19% on a one-year term)
  • Unanticipated fees (for breaking your mortgage early, reinvestment fees, administrative fees to switch or port your mortgage, 100% clawback of cash-back if the mortgage is broken before maturity, etc)
  • Mortgage restrictions (can’t refinance within x months, pre-payment restrictions, can’t break mortgage in first x years, etc)
  • Numerous/high mortgage penalties (last week we talked about IRD penalties, penalties for pre-payments, penalties for early termination of your mortgage, etc)

Depending on your situation, the lowest rate may, in fact, be the best option for you.  But a lot of the time, the lowest rate can end up costing a lot more if you don’t know all the fees & penalties that could come along with that rate.  One of the main benefits of using a mortgage broker is that we know the products offered by each lender – the ups and downs of the rates and options for each mortgage – so that we can help you pick the best mortgage that fits your current situation and needs.  Sometimes, taking a slightly higher rate will save you tens of thousands of dollars, whereas a slightly lower rate could cost you tens of thousands of dollars.

I’m not saying don’t shop around on the Internet (I’m an Internet-junkie if there ever was one!), but make sure to ask the (usually FREE!) advice of a mortgage broker before deciding which rate, term and mortgage is best for you.

 

Tim

Tim is a mortgage agent in Barrie who specializes in helping first-time home buyers. He works with a variety of lenders and can help customize a mortgage with the best rates & options that fit the needs of each customer.

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Term vs. Amortization

August 8, 2011

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The mortgage industry has an abundance of buzz words, phrases and acronyms that can be a common source of confusion for prospective home buyers.  Hopefully as you read through this weekly “Mortgage Monday” column, I can help put these words and phrases in terms a little easier to understand.

The first couple of phrases you’ll probably hear are “term” and “amortization.”  Both phrases refer to a period of time in the life of your mortgage.  The term of a mortgage can be defined as:

The length of time you are committed to a mortgage rate, lender, and conditions set out by the lender.

The term will have a direct effect on your mortgage rate (generally, the shorter the term, the lower the rate).  And, of course, there are many instances where you can actually break the term of your mortgage (to pull equity out, to get a lower rate, etc), though there may be penalties involved (something we will discuss at a later date).  A typical mortgage term in Canada is 5-years, though they can range anywhere from 6-months to 10 years.

The amortization of a mortgage can be defined as:

The length of time it takes you to pay off your entire mortgage.

The longer the amortization period, the lower your monthly payments will be (as they’re being stretched out over a longer period of time).  That being said, the longer the amortization period is, the more interest you’ll pay over the life of the mortgage.  A typical amortization period for 1st-time home buyers in Canada is 25 or 30 years.

It comes down to this: “shorter term = smaller rate” and “shorter amortization = smaller paymentsbut “shorter amortization = more interest.”  If you can afford it, getting a shorter amortization period is preferred, as it will save you a lot of money over the life of your mortgage (you’ll have higher payments, but you’ll pay off your mortgage faster, and spend less money).  As for term, some people prefer to get a smaller rate over the short term, hoping that rates don’t go up, whereas others prefer to lock in a slightly higher rate for a longer term (which lightens the risk of the mortgage debt, as you know your interest rate will remain the same over the length of a longer period of time).

Think of it this way: the life of your entire mortgage (amortization) is broken up into a bunch of little chunks (terms).  The longer the life of your mortgage, the more you’ll pay in interest. The terms, however, are just a measure of how much risk you’re willing to endure.  The longer the term, the higher the rate, but the lower the risk (of rates jumping up).  The shorter the term, the lower the rate, but the risk of rates going up by the time your term is up increases.

Tim

Tim is a mortgage agent in Barrie who specializes in helping first-time home buyers. He works with a variety of lenders and can help customize a mortgage with the best rates & options that fit the needs of each customer.

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