The Truth On Mortgages
Most of my clients focus on mortgage rates but this is not the only variable that needs to be considered when obtaining a mortgage. It is important to sit back and figure out what your long term goals are with respect to your real estate purchase: are you planning to flip it in a year, hold onto it as a rental property, live in it, etc. The type of mortgage you choose will impact your plans significantly. Sometimes a higher interest rate with better terms is the better option. It is important that you understand every aspect of your mortgage.
The difference between an interest rate of 2.99% and 3.04% in an additional $2.66 per month per $100,000 of your mortgage. Over the course of a five-year term, that will add up to a grand total of $159.60 per $100,000. Skip one latte a month and you've covered that expense.
If you are a flipper, one costly problem you could face if you are only looking at the rate is that you may end up having to pay thousands of dollars in early payout penalties if you choose a five-year fixed rate mortgage over a variable mortgage. Some mortgage products will not let you take your mortgage with you when you upgrade or downsize to another property before your mortgage term is up (moving your mortgage to a new property is called "porting" your mortgage). If you think you are going to need to upgrade or down grade in the future ask if your mortgage is portable before signing.
If your income fluctuates, you will want to know if your mortgage allows for prepayment privileges including lump-sum payments or if there is an option of obtaining a mortgage vacation. A five-year fixed term lowest interest rate is typically best for first-time home buyers who want fixed payments, have limited opportunities to make lump-sum payments and do not plan on selling during the first five years of their mortgage.
Lots of things can happen in five year: your job could transfer you to a new location, you could have a baby and need a bigger house, you could get laid off and need to downsize. Five years is a very long time to be locked into something. Take into account your long term goals to ensure you are making the best decision for your personal needs.
I highly recommend paying a few extra hundred dollars each month on your mortgage if you can swing it. Any extra money paid goes 100% to your principal payment, not interest. A few hundred extra a month can help you pay down your mortgage much faster!
I recently encountered a lady who was paying approximately $1,850 per month for her mortgage payment. I looked at her mortgage documents. She was horrified to discover that of the $1850 she was paying each month less than $300 was going towards her principal. $1,550 was going to pay INTEREST! She was only paying down her mortgage by $300 each month. You MUST read the fine print! Ignorance is never a plausible defense. Purchasing a home is typically the single most expense purchase a person ever makes. Educate yourself and hire professionals to protect your interests. If you are smart, there is a lot of money to be made in real estate. Real Estate has always been the number one wealth builder worldwide.
Lake Okanagan Realty