If you are unsure whether closed or open, fixed or variable is right for you for your Fort McMurray mortgage. Read on, the info below will give you a better understanding. We are still just a phone call away in case you want to talk to a live mortgage broker/specialist.
Open vs. Closed
An open mortgage is completely open for prepayment at any time throughout the term of the mortgage. This means that you can repay any or all of the outstanding mortgage balance at any time without a penalty. An open mortgage may be beneficial if you plan on repaying your mortgage loan in the near term. For example, you may be selling your home within a few months and will be paying it out in full, or you may be expecting other money that will allow you to make large prepayments to the mortgage loan more then the prepayment privileges allow. By going into an open term on your Fort McMurray mortgage this will avoid any penalty when you sell your home. We are your Fort McMurray mortgage brokers who specialize in every unique situation.
A closed mortgage has restrictions on how much of the principal you can repay without penalty within the term of the mortgage. Most closed mortgages allow you to repay a certain portion of the principal amount every year without penalty. The amount you can prepay depends on the lending institution but usually ranges from 15% to 20% of the original principal amount per year. You may get to do 20% monthly increase in your mortgage payments and 20% annually. Some other lenders allow 15% monthly increase and 15% annually and double up your mortgage payment. There may be restrictions on when the prepayments can happen and how many times per year you can prepay. For example, you may only be able to make prepayments once a year on the mortgage anniversary date or the prepayment may need to be on a regular payment date. Your Fort McMurray mortgage specialist Jodi Whalen will inform you on these policies as each lending institution’s policies can widely vary.
Fixed rate vs. Variable Rate
A fixed rate mortgage the interest rate is set at the time you get your mortgage and will not change for the entire term of the loan. It is locked in and guaranteed for the term to stay the same. For example, if you take out a 5-year term, fixed rate mortgage at 3.04% you know that your rate is fixed at 3.04% for entire five years and can not change. This type of mortgage offers you peace of mind and security, you know exactly what the interest rate and payments will be. You will generally pay a little higher interest rate for a fixed rate mortgage and the rate usually increases with the length of the term. Penalties if breaking your mortgage early can be way higher then a variable mortgage. Penalties on fixed rate mortgages closed are calculated off the interest rate spread and can have high penalties up to $20,000 if breaking your mortgage 2 years into a 5 year fixed mortgage closed.If you are at a big bank the penalty on a fixed closed mortgage can be 4 times the amount compared to another lender. Big banks have posted rates and use these in calculating penalties which result in crazy high penalties. We are your trusted Fort McMurray Mortgage Brokers and believe in explaining all of this to you!
A variable rate mortgage is a mortgage where the interest rate is tied to and floats with the bank’s prime rate. If the prime rate goes up, then your rate goes up. If the prime rate goes down, then your rate goes down. Variable rate mortgages usually offer the lowest available rate because you are taking the risk that rates may rise. For example you may get a rate of prime -.5% if prime is at 3% this would be a 2.5% rate if the bank of Canada raises prime by .25% to 3.25% your new rate would be 2.75%. They also have really low penalties and very transparent. At anytime you pay out your Fort McMurray mortgage early the penalty is only 3 months interest at all times.
There are many different options available for variable rate mortgages. At Mortgages for Less/Whalen Mortgages Jodi Whalen your trusted local Fort McMurray Mortgage Broker will help you review all of your options for your next Fort McMurray mortgage whether it is a new purchase or a transfer from one lender to another to get the best interest rate.
The Mortgage Term
The term of your Fort McMurray mortgage is the contractual life of your mortgage loan. The term represents the length of time that you and the financial institution are obligated to each other with respect to your mortgage. As you choose your mortgage, the term is one of the decisions you will need to make. The term of the mortgage for example 5 year fixed rate closed is usually shorter than the actual life, or amortization of your mortgage this might be 25 years. Once the term has expired, the mortgage is completely open for renegotiation. At that time, you have the right to find a new lender if you wish and your financial institution has the right to re-qualify you before renewing your mortgage. In practice, as long as your mortgage is current and all payments have been made as agreed, financial institutions will often automatically renew your mortgage, and not require that you re-qualify.
Short Term vs. Long Term
A short term mortgage is usually for three years or less. Short term mortgages are appropriate if you believe interest rates will be lower at renewal time. A long term mortgage is generally for three years or more. Long term mortgages are suitable when current rates are reasonable and borrowers want the security of budgeting for the future. This is often important for first time homebuyers. The key in choosing between short and long term is to feel comfortable with your mortgage payments.
Most lenders allow several options for payment frequency (how often you make your mortgage payments). Most will allow you to make payments either weekly, bi-weekly (every two weeks), semi-monthly (twice a month) or monthly. Choosing which type of payment to make will be a matter of convenience, but there may be advantages to paying more frequently than monthly. When you increase the payment frequency, you reduce the principal faster, pay less interest and pay off the mortgage sooner. Contact Mortgages for Less/Whalen Mortgages your local trusted Fort McMurray mortgage broker to discuss the options that will work best for you.