Renewing your Mortgage? Consider Your Options
August 10, 2017 | Posted by: Richard Allatt
Mortgage renewals come in all sizes but they also come in many 'shapes'. What shape your renewal takes will depend on your financial situation and the size of your mortgage, and in many cases your own preferences. Broadly speaking, mortgages have three variables, with a couple of options each.
Conventional vs High-Ratio
This is one where your finances will determine what you get. A conventional mortgage is the more desirable option. In order to qualify for a conventional mortgage, a down payment of 20% is necessary, but the advantage is that you don’t have to purchase mortgage insurance, which can save you quite a bit of money. It’s much easier to qualify for a mortgage with a down payment that large, as well. If you don’t have enough for a 20% down payment, you may qualify for a high-ratio mortgage but you will also require mortgage insurance. This is an additional cost but high-ratio mortgages are a viable option for those who have trouble saving the tens of thousands of dollars needed for a conventional down payment.
Open vs Closed
A closed mortgage has a set payment schedule. It is possible to make additional payments on a closed mortgage but there are additional costs to making unscheduled payments. Closed mortgages tend to offer lower interest rates but since you’re unable to repay early, the mortgage is prolonged and the lower interest rate is offset. An open mortgage has more flexible repayment terms. Depending on the individual agreement, your options might range from a few extra payments allowed per year to the ability to repay as much extra as you want, whenever you want. The slightly higher interest rates associated with open mortgages can be worthwhile if you’re planning on significantly increasing your payments and shortening your amortization period. The type you want depends on how you’re planning to repay.
Fixed vs Adjustable Rate
The rate here refers to the interest rate you pay on the mortgage amount. With a fixed rate, you pay the same interest rate throughout the term. This is certainly the option to take If you think that interest rates will rise, and has the added advantage that you’ll know exactly how much your payments will be for the entire term. An adjustable rate mortgage means the interest you pay on your mortgage will rise or fall as the prime interest rate goes up or down. This is a good option to take if you think the interest rate will be going down over your term, but be careful; if you’re wrong, and interest rates rise, you might end up with monthly payments you can’t afford. If you go for an adjustable rate, it’s wise to base your budget on a higher interest rate, just in case.
If you have questions about your mortgage or would like advice about Ontario debt consolidation or Ontario mortgage refinancing and renewals, contact Richard Allatt to find a solution that's right for you.