August 22, 2019

Low mortgage may seduce first-timers

MANAGING YOUR MONEY: Borrowing too much at today’s rates could lead to heartache and pain

By AUDREY DAKIN,
With a current range of approximately 2.5% to 4%, mortgage rates for residential real estate are still at or near historic lows across Canada. “Hmm” you think, “maybe it’s time to purchase my first home or trade up to a larger home.” Those can be big steps with long-term financial implications, and you could end up paying a lot more for that new home than you bargained for by making a less than optimal mortgage choice. So, let’s get you going in the right, and most cost effective, direction with this basic mortgage info:

What’s best — a fixed rate or a variable mortgage? There is no single right answer to this question. The question you have to answer is, “Which option is most suited to my needs?”

Fixed rate mortgages offer the security of a locked-in interest rate for the term you choose, typically five years. They provide peace of mind and predictable budget management because you know exactly what your mortgage payment will be for the length of the term. Approximately 66% of Canadians have chosen fixed rate mortgages.

Variable rate mortgages are usually available at a lower interest rate than fixed rate mortgages, at least initially, but the interest rate is linked to the prime rate and fluctuates.

Mortgage pre-approval is often encouraged by real estate agents because having your mortgage financing firmly in place indicates to prospective sellers that you are a serious buyer. Be aware that the mortgage lender will probably pre-approve you for the largest possible mortgage amount and when you’re shopping for a home, you may get caught in the trap of stretching your finances to the maximum.

Don’t over-mortgage your future. Talk to your professional planner about the best choice for you based on your personal financial objectives and your overall financial plan.

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