A question that is on the minds of both existing home owners and home buyers, do I go with a fixed rate or variable rate mortgage? What's the difference? The Banks will tell you that a fixed rate is the way to go...but that's because it's better for them!
Banks have always encouraged clients to go into a 5 yr fixed rate mortgage, yet the average Canadian will only stay in a mortgage for 3.4 years. Most clients don't anticipate the high amounts that they have to pay out in penalties when they decide to refinance or sell their home. As there is no standardization when it comes to penalities, this can be a huge blow to the budget, and most banks don't disclose these figures at the time of signing!
As a homeowner or home buyer, keep these items in mind when out mortgage shopping:
Beware of fixed rate or closed mortgages that will penalize you for leaving early. I'm a firm believer in the variable rate or open mortgage as the way to go!
If you are adamant about taking a fixed rate mortgage, consider a 3 year term instead of the promoted 5 year term. Who knows what the future will hold, so why tie your self up in such a long commitment that can result in large pentalities when you decide to break your mortgage.
Take advantage of prepayment options and apply these to your mortgage before it is discharged. it will reduce the amount of the penalty in the long run.
Know your numbers! How is this penalty calculated? How is my rate calculated and what happens when the Bank Prime Rate changes? Get answers before you sign!
Talk to a mortgage specialist to find the best mortgage strategies that will reduce the penalty that you will pay and get you the right product that will help you pay your mortgage off faster!
Remember, you have a choice when it comes to mortgages!
Your Realtor can refer you to the best mortgage specialists in the business. Call us today for a referral.