The home buying process is an exciting time, but it can also cause a whirlwind of emotions – especially the first time around. Being one of the biggest investments you’ll ever make, it’s important that you feel confident in your choices, not only for your home but for your mortgage too. So, how do you know which mortgage to choose? To guide you in the right direction, we’ve created a checklist of six key things to consider when shopping for a mortgage:
1. Know the difference between fixed vs. variable-rate mortgages
Fixed-rate mortgages have an interest rate and payments that stay the same throughout the length of your mortgage term. For example, if you have an interest rate of 2.4% on a 5-year fixed mortgage, the rate will be the exact same all 5 years of the term and your payments will not change. This could be a good option if you want to stay consistent on your payments and have more stability when budgeting. When it comes to a variable-rate mortgage, the rate will change based on market conditions. In this case, your payments would stay the same, but how much your mortgage interest is paid off will increase or decrease depending on how the interest rate changes. If you’re willing to take a bit of risk and potentially save more money over your mortgage term, a variable-rate mortgage might be the best option for you. Further, variable rate mortgages also come with lower penalties if you ever wanted to break your mortgage early.
2. Focus on prepayment privileges
While paying off your mortgage faster may not be your first thought when making a new home purchase, it’s actually something important to consider in the long run. Paying off your mortgage quicker, through monthly prepayments or annual lump sums, can save you a lot of money. If you’re considering paying off your mortgage as quickly as possible, knowing the prepayment privileges within your mortgage contract is essential. These privileges determine the number of additional payments you can make toward your mortgage, how often you can make them and how much you can actually pay off.
3. Be aware of prepayment penalties
Once you’ve got all of the information you need about prepayment privileges, you need to consider the prepayment penalties within your mortgage contract. This is an important factor to consider when shopping around for different lenders and mortgage options, especially given that penalties (in some cases) can amount to tens of thousands of dollars in unwanted fees. Understanding the penalties that come with your mortgage will not only help you find the right option, but save your thousands of dollars over the term of your mortgage. Some lenders have higher penalties, such as big banks, while others are lower. Having this knowledge is helpful to ensure there aren’t any big surprises if you ever have to break your mortgage early.
4. Look beyond the rate
Mortgage rates are definitely important but they don’t mean everything. If you shop for a mortgage based on rates alone, you may find yourself in a situation where you can’t take advantage of helpful and money saving features. Some lenders might seem favourable because they offer a slightly lower rate, but these options could likely cost you more money over time. Instead of looking only at rates, which may save you hundreds of dollars, consider factors like amortization length and prepayment privileges, which will save you thousands of dollars. Understanding these factors will help you confidently choose a mortgage that best suits you and your unique goals.
5. Shop different lenders
Many people think that getting a mortgage with the big banks is the best option; however, that’s often not the case. Other lenders like credit unions and monoline lenders continue to grow in popularity because they offer competitive products, lower rates and penalties, and increase your chances for approval. When it comes to getting a mortgage, the best thing to do is shop around because no two lenders will ever be the same. If you want to benefit from a mortgage that best suits your circumstances, it’s important to have a good grasp of what’s available in the marketplace.
At Homewise, we know that shopping around for different lenders isn’t always easy to do on your own. That’s why we work with over 30 banks and lenders and do the shopping around for you. Further, our team of advisors will walk you through the process and help you find the best mortgage.