By Helen March
Few of us invest the time and effort into researching and securing the best deal for a mortgage to purchase our home.
For most of us, our house is the single most important and expensive purchase we ever make!
We invest a lot of time and effort into finding the perfect property in the best location and with as many of the features
from our wish list as possible, yet, when it comes to finding the best deal for a mortgage, we take what is offered rather
than researching and securing the best mortgage for our situation.
When you consider that the average homeowner will pay out more in interest over the lifetime of their mortgage than the
home originally cost, you can see why getting yourself the best deal for a mortgage now, could save you tens of thousands of
dollars in interest over the 20-30 year term of your home loan.
Your research for the best mortgages or loans and repayment options currently available can be carried out on the internet,
thus making the whole process that much more convenient and time efficient for you.
Mortgages are not a "One Size Fits All!"
Mortgages come in many different forms and you need to be aware of the various forms in order to determine which one is
the best deal for a mortgage to your unique circumstances.
Basically, mortgages fall into one of the following categories. Lenders will have variations of these basic categories,
but armed with this information, you will be able to sort through the choices for just the right package.
Fixed Rate Mortgages:
Loan with an interest rate that remains at a specific rate for the entire term of the mortgage/loan. Approximately 75
per cent of home mortgages are this type. A fixed rate mortgage is often considered the best deal for a mortgage for
first time buyers as you can establish a consistent relatively fixed budget of household operating expenses.
ARM's or Adjustable Rate Mortgages or Variable Rate Mortgages:
A mortgage/loan with an interest rate that adjusts or varies with the changes in rates paid on Treasury Bills or bank
Certificates of Deposit. In Canada, the rates vary according to the posted weekly Bank of Canada rates.
To offset the risk associated with an adjustable rate mortgage, some lenders offer various 'capping' options. Often,
they fix or limit the maximum level to which the interest rate you are subject to can rise for a given period of time.
Sometimes they fix the cap per year and sometimes for the lifetime of the mortgage.
Adjustable or variable rate mortgages can be very attractive as usually the rates are considerably lower than for
fixed rate mortgages. They are an excellent vehicle for borrowers who are attentive to the rate fluctuations and prepared
to 'lock in' their mortgage when interest rates start climbing. If you're constantly watching the money markets, this
may be the best deal for a mortgage for you.
A mortgage in which the monthly payment is not intended to repay the entire loan. The final payment is a large lump
sum of the remaining principal. Balloon mortgages are often only partially amortized and requiring a lump sum repayment
It's popular mortgage in the US for homeowners who aren't planning to stay in their new home for more than 5 or 7
years. The advantage is that the interest rate is lower than a fixed rate mortgage however, the disadvantage is that if
you remain in the home beyond the 5 to 7 year term, you would have to secure a new loan or mortgage to pay off the
Jumbo Mortgages or 'Non-Conforming' Mortgages:
In the US, Congress has legislated a conforming limit to the amount a mortgage is allowable for funding by Federal
National Mortgage Association (a.k.a: Fannie Mae) and the Federal Home Loan Mortgage Corporation (a.k.a: Freddie Mac).
The 2009 limit is $417,000; $625,500 in Alaska, Guam, Hawaii and the U.S. Virgin Islands.
Any loan or mortgage above that conforming limit is considered a Jumbo Mortgage. A Jumbo mortgage/loan allows you
to borrow over the conforming limit, but for that privilege, you will incur higher interest rates. There are variations
to the Jumbo Mortgage such as the Super Jumbo Mortgage, but I'm sure you get the basic picture.
Canadians have an equivalent referred to as a "High Ratio Mortgage" guaranteed/funded through Canada Mortgage And
Housing Corporation (CMHC).
Now that you have identified which type of mortgage might suit you best, you need to consider repayment methods
and you basically have two options:
An interest only payment method can be combined with any type of traditional mortgage. Interest only payment
periods almost never run for the entire term of the loan, so prepare to have your payment rise to include both principal
and interest once the interest only period ends.
Principal and Interest or Capital & Interest:
Your monthly repayments are divided into an interest payment and a principal or capital repayment. In the early years
of the mortgage period most of the monthly payment is swallowed up in interest but over time the balance reverses and
you start to pay off more of the capital or principal borrowed.
So Many Mortgage Lenders ... So Many Choices!
There are so many mortgage lenders offering such a variety of loan options that at first it can seem a daunting
task trying to determine which lender most suits you and your circumstances and which Lender is offering you the
best deal on a mortgage!
It is important to note that as you shop for a mortgage, each lender will perform a credit check prior to committing
to the mortgage or loan. Each credit check remains on your credit record and could potentially reduce your credit
score and eligibility for a mortgage or loan.
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