Community News

Tuesday, July 18, 2017

There is more to mortgage costs than just the interest rate

Purchasing a home will likely be the largest single purchase you may make in your lifetime, so you need to consider all of the cost and conditions of a mortgage—not just the interest rate.
Mortgage brokers offer interest rates that are often—but not always—lower than the rates offered by conventional financial institutions. However, the lowest advertised interest rate may not be the best overall deal for you. There are other costs and conditions you need to consider, and ask questions about, before you commit to a mortgage. These include:
·        What additional fees are involved in a brokered mortgage that may affect your mortgage closing costs and/or your future sale costs?
·        In selecting the mortgage company and the type of mortgage for you, is the mortgage broker looking after your specific mortgage needs or the size of his/her commission?
·        What conditions are imposed in the brokered mortgage contract for such items as prepayment privileges, if any?
·        What restrictions are imposed under the brokered mortgage contract? Do you have the flexibility to refinance the mortgage before the mortgage term expires if you need additional funds to build a garage, rec room or other home improvements? If you can refinance, what are the fees and penalties?
·        If you’re dealing with a credit union or a bank, is the mortgage officer paid a commission based on the type or size of your mortgage?
·        Does your broker or financial institution offer pre-approved mortgages? If so, what are the additional fees?
As you can see, there are a lot of important questions to ask and things to consider when securing a mortgage that is right for you.
At North Winnipeg Credit Union, we can help you focus on your best interests and developing a mortgage that has the terms and flexibility that meets your needs.
Talk to us first — you’ll be happy that you did. Call us at 204-954-7450 to talk to one of our Financial Services Officers.

A short dictionary of mortgage terms

Amortization: Total number of years needed to repay the mortgage loan. (Typically between 15 and 25 years.)
Convertible: Fixed-term mortgages (typically six- or 12-month terms) that can be converted to longer terms without penalty charges.
Variable: A mortgage rate that fluctuates with the financial institution's lending rates. Variable rate mortgages are reviewed annually to ensure payments are sufficient to retire the mortgage in the remaining amortization period.
Fixed: An interest rate that is locked in for the term of the mortgage (usually six months to seven years).
Open: A mortgage on which you can pre-pay any amount without penalty.
Closed: A mortgage with limited pre-payment options, beyond which a financial penalty is levied (often 90 days’ interest).
Penalties: Usually levied when payments to a closed mortgage exceed the amounts allowed under the mortgage agreement.

Variable or fixed rate mortgages: Which is the best for you?

If you’re in the market for a mortgage, you may be questioning whether a variable- or fixed-rate mortgage is right for you. With a fixed-rate mortgage, the interest rate is set for a pre-determined term. The benefit of this type of mortgage is the peace of mind it provides, given that you know what you will be paying for the term you’ve selected.
Variable-rate mortgages feature payments that are fixed for a specific term, although interest rates may fluctuate from month to month based on market conditions. If interest rates go down, more of the payment goes towards reducing the principal; if rates go up, a larger portion of the monthly payment goes towards covering the interest.
If you’re comfortable with the possibility of interest rates edging upward, you may want to consider a variable-rate mortgage, particularly because variable-rate mortgages feature lower interest rates. Variable-rate mortgages also offer the advantage of prepayment at any time without penalty.
If you’re not comfortable with the idea of rising interest rates, you may want to opt for a fixed-rate mortgage, which will mean that you’ll pay a slightly higher rate, but you won’t have to worry about it changing over the term.

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