Mortgage Essentials

When I was younger, the whole concept of being a homeowner seemed as alien to me as the need for life insurance, RRSP’s and arthritis cream; any conversation that veered towards the topic of purchasing property always filled me with an unexplainable sense of dread…then the word “mortgage” would surface.

While paying off the last three years on my 1991 Honda Accord seemed daunting enough, I couldn’t at the time imagine buying something that carried with it the certainty that for the next 20 to 30 years, a large chunk of my future paycheques would be disappearing towards paying down what seemed to be an incalculable and insurmountable number.

In and of itself, the very word “mortgage” means to expose (oneself) to future risk for the sake of immediate advantage. This definition seems quite fitting, after all, how many times in the world of sports for example have we heard that such and such major league team has “mortgaged the future of the organization by trading for player “x” or signing player “Y”?

This hardly sounds like a good thing, but it is! When you are a mortgagor you own a portion of something tangible: property. Assuming you’ve done your due diligence, researched everything and crunched the numbers properly, bought in the right area and at the right price, the last remaining block in building equity and maximizing one of the only tax-free capital gains available out there is to ensure you’ve negotiated for and obtained the proper mortgage that’s right for you.

With expensive housing prices in the GTA that are climbing steadily and seemingly with no end in sight, scraping together the 20% down payment that allows you to bypass mortgage insurance is getting more and more difficult and can seem an outright impossible pipe-dream for many.

The easiest way to set yourself up for the best mortgage in your particular situation is to contact an independent mortgage broker. Unlike the major banks who can only offer their limited and fairly broad products, these specialists will sit down with you and carefully evaluate your credit history, finances, short and long-term goals before comparing what is being offered by the major lenders as well as from the dozens of other, lesser-known yet equally reputable mortgage backers. Your broker will explain to you how mortgage insurance works, what your payment options are, as well as the differences between and benefits and drawbacks of fixed, variable and blended mortgages.

While rates are of primary concern, he or she will also explain to you how the portability of your mortgage and the possibility of early or accelerated repayments should factor heavily in your decision, and will point out which penalties to look out for and to consider when making your final choice.

Ultimately, whether you decide to use an independent mortgage broker, to go directly through your bank, or to do your own research and secure your own financing, it’s critical to shop around before signing on the dotted line. Plan correctly and you could save yourself thousands of dollars in interest payments over the term of your mortgage, money that can be used to purchase say, a 1991 lime green Honda Accord with 300 000 KMs on the odometer and a tape deck with no Fast-Forward button…