Mortgage rates are low right now but if recent reports are accurate, they may be going up sooner rather than later.
While a low interest rate is always good, there are other important factors you should consider before signing on the dotted line.
• A flexible mortgage can save you money.
Look for a mortgage that includes the option of changing payment frequency or of increasing the amount of your monthly payments without a fee. By making accelerated and/or lump-sum payments you’ll pay off your mortgage faster saving on interest costs. Mortgage lenders usually allow a yearly lump-sum payment of up to 15 per cent of the original principal amount.
• A portable mortgage can save you money.
Mortgages usually have an amortization period of 25 years, with a typical mortgage term of five years, but you can get one that offers the option to move that mortgage from one property to another. If you think your new home will not be your last home, mortgage portability is an option you should consider.
• An ‘assumable’ mortgage can save you money.
Another mortgage option to look for if you intend to ‘move on’ is assumability, which allows you to transfer your existing mortgage to the new owner of the property you’ve sold — saving on prepayment charges for ending your mortgage before its maturity date.
• A re-advance option can help if you unexpectedly need additional funds.
This option allows you to obtain a ‘re-advance’ of funds up to the original registered amount of your existing mortgage.
• Beware of ‘low rate’ promotions.
Advertised promotions for extremely low mortgage rates often come with strict repayment options, and steep repayment charges if you need to exit the mortgage term prior to its maturity date.
• ‘Cash back’ mortgages can mean ‘cash back’ to the lender.
These mortgages offer a cash rebate (usually three to five per cent of the principal amount) but if you don’t stay with the lender for the full amortization term, the ‘cash back’ amount may need to be paid back to the lender either in part or in full.
• Advice can be valuable.
Don’t jump into a mortgage. Instead, work through your mortgage requirements with a professional adviser and legal adviser to ensure you get the best mortgage product for your financial needs.
J. Kevin Dobbelsteyn is a certified financial planner with Investors Group Financial Services Inc. His column appears every Wednesday.