There’s no one “best” mortgage: What’s best for one person might not be the best for you – but the right mortgage can help you save thousands of dollars in interest and own your home much faster.
Finding the best mortgage for you
There is no “best mortgage”: Finding the best mortgage is personal, so you’ll want to consider your individual circumstances when you’re looking for the best one for your needs. Here are some important factors to consider:
- Your current financial needs. Analyze your budget to determine how much you can reasonably pay each month toward your mortgage. Your interest rate, rate type and loan term will affect the monthly payments you’ll ultimately take on.
- Your future financial needs. A mortgage is a long-term financial tool that can help you buy one of the biggest assets you’ll likely ever own. To find a mortgage that grows with you, think about your needs and wants — both now and in the future. Whether you’re a young professional, a growing family or an almost retiree, your needs will differ.
- The purpose of your mortgage. From buying an investment property to funding your family home, the purpose of your mortgage can affect what you’re eligible for and how you manage repayments and interest.
What’s important to me?
You’ll want to consider a mortgage based on your lifestyle and goals. In general, you can break down the best mortgages into three categories:
The least expensive mortgage
Many factors go into determining the least expensive mortgage. In general, an inexpensive mortgage might be the one that offers:
- The lowest rate. If a mortgage interest rate is low, there’s less payable interest with each repayment – leading to sizeable savings over time. You’ll also pay more towards the principal amount as opposed to interest. In addition to advertised variable and fixed-rates, some lenders offer discounts for borrowers with a good credit history or the resources to put down a larger down payment.
- The lowest fees. You can save big with a mortgage that doesn’t come with expensive upfront application or closing fees, not to mention ongoing fees like mortgage insurance. Remember that a low advertised rate might not add up to savings once you’ve factored in these fees.
Pros and cons of an inexpensive mortgage
- Potentially lower monthly payments.
- Possible lower overall cost.
- May be light on features and flexibility.
- Could be harder to qualify for.
- Could require a larger down payment.
The easiest mortgage
An ideal factor for some borrowers is that approval for a mortgage is quick and painless. You may be looking for a mortgage that can settle quickly or a lender willing to consider less-than-perfect credit. How easy a mortgage is to secure will differ among lenders, employment situations, credit scores, down payments and turnaround times.
Borrowers that are looking for an easy mortgage may include:
- Retirees and credit-impaired borrowers. For a borrower in retirement, the right mortgage could simply be one that gets an approval without a steep interest rate. Likewise, a borrower with a poor to fair credit score might look for a lender willing to give them a second chance.
- Those with a low down payment. Borrowers entering the property market for the first time with a small down payment will want to look for a mortgage that doesn’t require a 20% down payment. They’ll also need to keep mortgage insurance in mind.
- Self-employed borrowers. Many lenders require paycheques or bank statements as proof of income and employment. This can be difficult for self-employed borrowers, but you’ll find lenders willing to accept alternative documents for income verification.
- Borrowers looking for a quick turnaround. A straightforward, no-frills mortgage might be an option for borrowers who need to settle quickly. If you have a large deposit and good credit, you’ll likely find lenders who can turn around your mortgage rather quickly and easily. Online lenders tend to be particularly agile in approving mortgages.
Pros and cons of easy mortgages
- Potential approval for a wide range of borrowers.
- Could offer a faster closing time.
- Might come with higher rates or fees for the convenience of speed.
The most flexible mortgage
Mortgages with more options can help you access your equity easier or allow you to pay off your mortgage faster without incurring big penalties. You could find flexible options that include:
- Mortgage accelerators — allow borrowers to make accelerated weekly or bi-weekly payments, which can help you own equity in your home quicker and see you pay less interest over the life of your mortgage.
- Convertible mortgage — gives you the freedom to switch between interest rates, loan terms, amortization periods and much more in order to take control of your mortgage.
- Extra payments — shorten your mortgage with additional payments (per month or in a yearly lump sum) toward your principal without incurring prepayment penalties. You’ll typically need an open mortgage to avoid early repayment fees.
- Cash back mortgages — allow you to earn cash back, which is usually paid in a lump sum once your mortgage is paid in full and closes. You can expect to earn between 1-5% cash back.
- Product bundling — you may be able to negotiate a lower interest rate in exchange for moving your bank accounts, credit cards and loans over to your mortgage lender.
- Hybrid mortgage — split your mortgage into fixed- and variable rates to reap the benefits of both types of interest rates.
Pros and cons of flexible mortgages
- Can offer money-saving features.
- Can enable borrowers to pay off their mortgages faster.
- Can make getting a mortgage easier.
- Gives you more control over how you pay your mortgage.
- May carry additional fees and costs.
- Requires some knowledge and know-how.
What do I do now?
If you’ve considered your circumstances and think you’ve narrowed down the type of mortgage that best suits your needs, it’s time to find a lender that offers what you’re looking for.
What type of mortgage do you want?
You’ll find a range of mortgages available in Canada – but so many choices can leave you confused. Before you apply, find out more about each mortgages features, terms and conditions.
Frequently asked questions about mortgages
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