Structuring Your Mortgage

structuring-your-mortgage

Sep 09 2016

There are several qualities in a mortgage which must be considered to ensure you have the mortgage structure that is right for you.

Primarily, you must decide between an open versus closed term and a fixed versus variable interest rate. Below I have outlined the key points which characterize each of these elements.

Fixed Rate

  • Rate remains constant for the entire term of your mortgage
  • To change your rate a refinance is required
  •  More accurate for budgeting since you know exactly when your mortgage will be paid off

Variable Rate

  •  Rate fluctuates with the bank prime rate
  •  When the prime rate increases, more of your mortgage payment will go towards interest. When the prime rate decreases, more of your mortgage payment will go towards paying down the principal. These fluctuations create some uncertainty in that they affect the life of your mortgage.
  •  Historically these rates have been lower than fixed rates.

Open Term

  •  Mortgage can be paid off at any time, without a penalty
  •  Additional payments can be made at any point, without penalty
  •  Range for 6 month to 5 year terms
  •  Discharge fee still applies when paying off mortgage or transferring it to another lender
  •  Interest rates tend to be higher

Closed Term

  •  Can prepay up to 20% of your original principle balance each year with most lenders
  • Terms range from 6 months to 10 years
  •  Can be renegotiated or refinanced before it matures according to your specific conditions
  •  To buy out of the mortgage you must pay the IRD penalty
  •  Interest rates tend to be lower

For most, a mortgage is the core of your family’s financial plan and therefore is a decision which must be considered in detail. This decision can cost you thousands, or better, save you thousands if planned properly. I hope for the opportunity to assist you through the mortgage process. If you have any questions please do not hesitate to give me a call.

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