Canadian Mortgages

Mortgages in Canada can be a bit confusing at times. First there is the amortization period which is how long it will take to pay off your home. Since 2013 the maximum amortization has been 25 years. Back in 2006 you could take up to 40 years to pay the house off, but after the recession in 2008 more people lost their homes to foreclosure so the government has been steadily making it harder for people to qualify for a mortgage. You need to be in a much better financial position to qualify for a 25 year mortgage versus a 40 year mortgage.

Then mortgage term is the length of time you will be paying a certain interest rate. For example many people choose a five year fixed rate. So that means that if their fixed rate is 4% they pay that interest rate for five years. Once the five years is up they will have 20 years left on their amortization and they will have to sign a new mortgage term with their bank or financial institution. They would continue this until the original 25 year amortization is over.
There are many options for the mortgage term such as variable rate where the interest rate varies with the bank of Canada prime rate. It is usually better to go with a variable rate as this is almost always lower than a fixed rate. Over time even a half a percent lower rate can save you thousands of dollars in interest payments. It all depends on the individual’s risk tolerance because with a fixed rate you get the peace of mind of knowing what your payments are and how much goes to interest. With the variable you still know what your payment is but you don’t know how much of it is going to interest. Also if interest rates were to rise dramatically over a short period of time, the person with a variable would see their rates rise as well, whereas the person with a fixed rate would see no change.

The most important thing to know is that you must get the lowest mortgage rate possible. Do not just take what your bank gives you. They will not be looking out for your best interests. They only care about maximizing their profits. You must negotiate with them and be prepared to walk away and go to another bank if they will not give you the very best rate available. Again I must state that you can save yourself thousands of dollars over the life of the mortgage.

Leave a Reply

Your email address will not be published. Required fields are marked *