BUILDING THE PERFECT MORTGAGE

The ideal mortgage would be one with a sub-market interest rate that is open to pre-payment and is flexible in every way.

While lenders inevitably fall short of this ideal, keen competition for mortgage business has made them more obliging, especially if you have other business they would like to win. Indeed, the number of choices can make assembling the right mortgage appear overwhelming, especially to first time home buyers.

Here are some guidelines and some of the mortgage options available to our Credit Union members:

Short– or Long–Term?
Over the life of your mortgage, the interest rate is liable to fluctuate. This inconsistency makes it hard to judge whether you should take out a long term or short term mortgages, but it's a choice you have to make. Here is what each plan can offer you.

The Short
Available in either 6 month or one year terms, short term mortgages offer lower rates than long term, and offer quick renewal, if rates decrease. If the interest remains at its level, then you are still ahead because of the lower interest rates on short-term.

And the Long
If you believe the current interest rate is low and could rise soon, you are more interested in purchasing a long-term mortgage. HOW long is another question. One of the key factors is in the differing rates. It's important to figure out how much it will cost per year, depending on the current market conditions.

Watch The Trends
The next thing to do is keep aware of market trends. If the rates have been at record lows; you would want to take a long-term mortgage, while if rates are at record highs, a short-term mortgage would be more beneficial.

Everybody Needs to Dream
Since no one can accurately predict where interest rates are going, who you are and where you stand financially should also play an important role in determining the mortgage you choose. First-time home buyers who are already stretched to their financial limit are well-advised to shun the risk of short-term or floating-rate mortgage loans. As well, people who are naturally averse to risk may find the security of a long-term, fixed-rate mortgage more appealing, although it might cost more. Knowing how much your monthly mortgage will be, and knowing that they are fixed for a set number of years is a lot easier on the nerves for many people.

Conversely, people with good, secure incomes and substantial equity in their homes are better situated to take advantage of the lower rates offered on shorter-term mortgages. The key is that, while historically those choosing shorter-terms have benefited from lower housing costs over time, you have to be prepared for the increased financial burden you'll have to carry when you next renew your loan if rates suddenly spike upwards.

Know your Options
There are several dfferent mortgages available to you. Here are some of the mortgages available to you.

• Assumable mortgage
  A pre-existing mortgage which is taken over by the buyer of a new building. Occasionally, this is done without the new owner having to qualify for a loan.
• Closed mortgage
  A mortgage with a fixed interest rate for a term with no advance payments allowed.
• Conventional mortgage
  A mortgage which pays up to 80% of the property's appraised value.
• Convertible mortgage
  A mortgage which allows a client to switch from a short-term to long-term mortgage when the opportunity arises (ie. When rates fall)
• Fixed-rate mortgage
  A mortgage which is set at a specific payment level for a certain amount of time, ranging from six months to more than five years.
• High-ratio mortgage
  A mortgage for more than 75% of the appraisal. This mortgage usually requires insurance against default by the borrower
• Open mortgage
  A mortgage where a part of full principal payment can be paid at anytime without penalty. This is usually applied to six month or year short-term mortgages
• Pre-approved mortgage
  A pre-approved mortgage by the lender which allows the borrower to know their price range for a property.
• Second mortgage
  A mortgage for borrowers who do not have a large enough down payment on a property. This comes in the form of a conventional mortgage.
• Variable-rate mortgage
  A mortgage where interest rates change frequently. Usually the payment does not change, only the interest rates (if a rate falls, more money goes to the principal. If the rate increases, then more money goes to paying off interest).
• Vendor-take-back mortgage
  When the seller helps the buyer finance the mortgage. Often referred to as a second mortgage.

Putting It All Together
As you can see, the decision to buy a house using borrowed money brings with it many additional decisions. Take some time to understand your options, and don't rush into any agreement without understanding the implications of these decisions. A good mortgage agreement will save you money, time, and headaches. We will be happy to help you understand your choices, and put together a package that works for you and your family. And remember that each time your loan comes up for renewal, you have the chance to restructure it to take advantage of the current interest rate environment and your changing financial circumstances.