Mortgage Basics
How do I choose a mortgage term?
Each time the Bank of Canada begins to shift interest rates, a shudder goes through us all. It signals another period of guessing, weighing borrowing needs against the prospect of getting caught in a credit squeeze. Nowhere is this more frustrating than with a mortgage decision.
The Term to Choose
The first thing to consider when choosing a term is what is most important to you. Some people prefer the security of a longer term with both a fixed interest and payment. Peace of mind is more important to them than the possible interest savings from a shorter term with the potential of renewing at a lower interest rate.
When rates look as if they're on the way up, borrowers tend to go longer term to lock in the lower rate. But, if rates look stable or are expected to come down, it's natural to lean toward shorter term and the chance of a better rate later on. Essentially you should consider whether you can comfortably carry the payment on a higher rate mortgage if rates are higher when it's time to renew.
The Six-Month Term
A short-term rate can be attractive. For the borrower who wants time to watch the rates before locking in and who is fairly flexible as to payment size, it is a very useful option. Some institutions may offer incentive rates for this short term. Again, be sure you can afford the payment increase if the discounted rate is not available at renewal.
What personal information should I have ready when applying for a mortgage?
- An indication of your income, such as last year's income tax form or a pay stub;
- The length of time at, and location of, your current employment;
- Your statement of net worth;
And if you have already picked a home, include:
- The real estate listing describing the home;
- The sales agreement, if completed.
