It’s always good to know your options when it comes to mortgages.
While so much time and effort is spent on finding and buying the right property, we often don’t think enough about the type of mortgage we’re choosing.
And we think about mortgages even less when interest rates fall, as if that is the product of the home loan.
Since June, our interest rate has been cut seven times by the Bank of Canada and now stands at 2.75%. So, is it still the case that your mortgage remains the best fit for you?
If you’re one of more than a million Canadians who’ll be renewing their fixed-rate mortgage arrangements over the next couple of years, you should start thinking about your options.
The right mortgage isn’t just about a low interest rate but also the conditions placed on the deal.
Typically, the cheapest loans come with the strictest rules. These can disallow early or extra payments, and enforce a penalty if you want to move to another lender.
So, it pays to think about the best mortgage for your personal situation.
Here are seven tips for reassessing commitments.
Think strategically – Canadians usually renew their fixed-rate mortgage arrangements about four months ahead of their expiry. So, give yourself plenty of time to assess the mortgage marketplace.
Use experts – A mortgage broker can help. They will have an in-depth knowledge of products offered by multiple lenders. They can also help you with paperwork, and assist in improving your credit rating if that’s required.
Demand a deal – The mortgage business is highly competitive. Plenty of lenders want to win your business, and they’ll offer attractive rates to do so. But bear in mind those “great value deals” may come with lock-in clauses and other rules. Read the fine print.
Switching lenders – Before you take this path, find out whether your current lender will enforce a financial penalty for breaking the deal. Even though you might want to move to a better arrangement, the cost of doing so could be prohibitive.
Fixed or variable – If you’re contemplating another fixed-rate deal, you need to consider whether rates are going to trend higher or lower. If you think rates will be cheaper, you should choose a variable rate. A fixed rate over a three to five years will give you repayment consistency – and a lot of people favour this predictability.
Loan consolidation – Renewing a loan is a great time to consolidate all your debts and put them in one big bucket. You can zap your credit card debt and its high interest charges by paying it off with funds available through your home loan. Managing your finances becomes so much easier when you take this approach.
Reducing your mortgage – If you have savings in a separate account, you should consider using them to pay down your mortgage. Almost certainly, the interest you’re getting on your savings will be less than the interest being charged on your mortgage. The smaller the mortgage, the quicker you’ll be able to pay it off.