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Get a Mortgage with Purpose

By: Cam

Read More About Mortgage

Gone are the days when people saved their hard earned money and bought their home for all cash. Now they choose to partner with a lender. I'm sure you've heard the term "living your life on purpose". If we should live our lives on purpose, shouldn't we get a mortgage with purpose?

Yes, your overall purpose of getting a mortgage is to secure the money, whether you are buying or refinancing. Yet, mortgages are like cars. There are many types and they have an array of different options. They will all get you to your destination of home ownership free and clear, but how easily and at what cost?

The purpose of your mortgage should match your lifestyle and your values. Just getting a 5-year fixed rate mortgage because that is what most people do is not getting a mortgage on purpose. You deserve to have your situation understood first, then find a mortgage product that fits your specific needs.

Here are two factors to help determine what type of mortgage will work best for you.

Mortgages come with two main interest rate differences. One is a variable rate and the other one is fixed rate.

The variable rate mortgage changes the interest rate with the change in the Prime Rate set by the Bank of Canada. When this happens, your payments may change over the term of your mortgage. A variable rate mortgage typically has a lower interest rate than a fixed rate mortgage, and will out perform the fixed rate.

Today the prime rate is 2.25% and variable rate mortgages are at prime and some slightly lower than prime. The penalty for paying this one out early, as in selling your house before the end of your mortgage term, will typically be no more than 3 months interest penalty. Most lenders will let you convert your variable rate into a fixed rate during the term.

The "litmus" test is if you cannot handle increasing payments or will stay awake at night wondering when interest rates are going to increase, this mortgage is not for you. The sub-prime meltdown which has thrown us into a recession is a direct result of U.S. homeowners being unable to pay the increased mortgage rates they were faced with. It is forecast that the prime rate will stay at this historically low rate at least until June of 2010, but may then start to increase.

If your budget is fixed, you have to know that your payments will be fixed, and this will be a prime concern. The fixed interest rate mortgage has an interest rate that is consistent throughout the term of your mortgage. The interest rate is typically higher that the variable mortgage and is chosen more often by the average homeowner because the payments are fixed and easy to budget for. The penalty for paying this one out early will be the greater of 3 months interest or the interest rate differential, which can end up being a large sum depending on the circumstances. If you want consistency and security, you will likely want a fixed rate mortgage.

Some other questions that a good mortgage broker will ask you, as I will, are: Are you in a job that may require you to move within five years? Do you need cash back from the lender for closing costs or for paying down some other debt? Is this an investment property or a primary residence? Do you get bonuses with your job where you may want to put some of the funds against your mortgage?

Remember, when I understand what your values are and the purpose for your mortgage, the type of mortgage and options that I recommend will obviously be the best to suit your specific needs.

Your mortgage should fit your purpose.

Article Source: http://depositarticles.com/

Cameron Wood is a mortgage associate with Dominion Lending Centres Key Financial. Visit his web page for more articles, to sign up for his informative newsletter, and to receive personal service www.cameronwood.ca .

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