For first-time home buyers, and current homeowners renewing or refinancing their mortgages, the Toronto Star recently published an insightful article outlining eight points that should be considered when weighing one’s mortgage decisions.
Of course, the number of mortgage products and options are wide and varied, but one of the most critical decisions one faces is whether to opt for a variable rate or fixed rate mortgage. As the Star’s personal finance columnist, James Daw, points out, in most instances a variable rate mortgage will turn out to be the better option in terms of the amount of interest that is, in fact, paid out; yet, such is not always the case. “You can sleep easily when rates are stable or falling,” writes Mr. Daw, leaving it unsaid that in a period of rising rates one’s sleep may be more restless.
“Be ready for rates to rise” is one of the themes of Mr. Daw’s article. “If economists at the Toronto Dominion Bank are right about the general direction of rates,” he reports, “variable mortgage rates could be 3.15 per cent or higher by late 2011.” On the other hand, he notes, “Five-year rates could be 4.38 per cent or higher, with more increases to follow, [and, soon] today’s five-year rates could be cheaper than variable rates.”
Other key points to consider when shopping for a home mortgage are highlighted, including whether or not a mortgage is convertible from a variable to fixed rate, whether there will be legal costs if one switches mortgage lenders, and whether one’s mortgage will be high-ratio (along with points to consider in terms of mortgage insurance).
Mr. Daw’s final point is that a knowledgeable mortgage broker “can help you find the combination of rate and flexibility you want.” The added bonus of using a mortgage broker, he notes, is the cost. A new mortgage lender will pay the mortgage broker who can guide a first-time home purchaser or existing homeowner through the often daunting maze of mortgage choices and options.
