Best Mortgage Rates Canada, Where To Start?
As I described before, the best mortgage rates Canada, are only the best if you understand your needs.
First, before you choose a specific term or number, make sure you ask yourself this question: "How long do I plan to stay in this home?". Your answer, will affect the term and the kind of mortgage that you choose!
For Example, You plan to purchase a home, improve it/renovate it and then sell it. In other words, you plan to keep this mortgage for a short term.
Great, you need to set up an open mortgage or home equity line of credit, or short term mortgage.
If you plan to fix and flip and then you choose a long term fixed best mortgage rates in Canada there will be penalties.
Penalties could be as low as 3 months interest or as large as interest rate differential. These penalties could add up to thousands of dollars! For you, a long term fixed rate is not the best mortgage rates Canada!
A fix and flip strategy combined with long term fixed rates will eat away your profits!
Best Option: Set up an open mortgage or home equity line of credit. No mortgage penalties would apply, therefore savings for you!
For Example, You plan to purchase a home and stay there until you retire. In other words, keep the mortgage for a long term.
If you are a first time buyer, telling me that you plan to stay in this house until you retire, I probably won't believe you! Most First Time Home Buyers that I have met generally stay in their first home 3 to 5 years. If this is the case, don't take a mortgage term greater than 5 years! A 3 year or 4 year term would probably be better.
If you do really plan to stay in your home for the long term then you have more choice. You aren't limited by your expected tenure. You should then ask yourself more questions:
What is your plan/goal?
Do you want to keep the payments low and affordable?
If this is the goal, then choose a longer term. A fixed 5 year term mortgage, for example, would give you benefits of a fixed payment over 60 months. You can budget for the long term. These payments should become more affordable over time.
A variable rate could be the best mortgage rates in Canada. Choosing a variable rate mortgage could keep your payments even lower, however there is risk that the payments will fluctuate over time.
With increases to the prime rate the payment will increase but with decreases to the prime rate payments will decrease.
What is your plan?
Do you want to pay off the mortgage early? This goal could benefit from a long term fixed mortgage.
This goal could also benefit from a short term or variable mortgage. The average interest rates for a short term mortgage or variable rate mortgage is generally better than the fixed interest rate over the same period of time!
For this goal, a home equity line of credit could also offer many benefits! Flexibility to pay down / pay off your mortgage earlier and faster. Flexibility to draw funds back out if you need them.
A general rule of thumb:
Should you take a longer term or shorter term/variable mortgage?
When you plan to make extra payments to the mortgage. When you make a payment higher than the minimum payment and this results in an effective amortization less than 20 years then a short term or variable mortgage is a better choice.
What is your plan?
Do you need some funds to pay off debt, or purchase something
Some mortgages will allow a cash back component. You could receive a cash back of 5%, for example, sometimes more & sometimes less. The cash back is typically given in lieu of a discount. In general, for every 1% of cash back the interest rate is increased by approx 0.25%. Each lender has their own way of calculating this...
Most of the time, when I compare a cash back mortgage to a straight discounted rate, the best mortgage rates in Canada for you is the lower rate over the long run. If you have a specific situation, the cash back could be beneficial. See zero down mortgage loans.
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Now that you know what type of rate you are looking for. Check out where to find the Best Mortgage Rates In Canada!
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