Deciding on a mortgage strategy

Are you open or closed?

An open mortgage allows a homeowner to pay down the debt at any time without penalty or renew a mortgage at any time to take advantage of low interest rates. A closed, fixed-rate mortgage gives you the security of locking in your mortgage at a set interest rate for a longer period of time. Closed variable-rate mortgages provide a set interest rate based on Prime Rate; however, as Prime moves so will the application of your interest and principle portions of your payment. Closed mortgages often allow a variety of pre-payment options.

Choose your rate of comfort – variable or fixed

In almost all cases, a variable rate mortgage will have a lower interest rate than a fixed rate. You may be the kind of person who is comfortable watching rates and accepting the possible ups and downs. Because a variable rate mortgage generally offers fixed payments, it is the contribution to your principal that fluctuates. If you are willing to accept some risk you could save money with a variable rate mortgage.

Or, you may be the kind of person who would rather not watch mortgage rates, and are comfortable knowing that your rate stays the same whether interest rates go up or down. A fixed rate mortgage may be a better choice for you if you can give up the potential of savings for security.

Ask about a split or multiple rate

It can be hard choosing which type of mortgage and term length is right for you. When you really want the best of both worlds, ask your lender if they offer split or multiple rates. This allows you to split your mortgage into two or more terms to take advantage of different rates and term lengths.

Check your prepayment options

Whether you opt for a ten, five or one year mortgage term, find out what the prepayment options are. Why? You may want to adjust the terms of the loan during the contracted period, especially if rates change, you have excess cash flow or you sell your home. Prepayment options include annual lump sum payments or accelerated bi-weekly or weekly payments to pay off the principal faster.

Get pre-approved before you start house hunting

You can hold the current rate for up to 90 days while looking a suitable property.

Whether you are in the market for a new home or are looking to upgrade, talk to a BlueShore Financial financial advisor today about all your mortgage options.