Of Prime Interest: Don’t lose sight of long-term needs

Our needs today will be different from our needs down the road.

  • Sep. 28, 2013 8:00 p.m.

What we choose to do today will affect what will determine our future.

That is especially true when looking for a new home as we have our eyes on the mortgage interest rates today to help purchase that home.

But our needs today will be different from our needs down the road.

If you are a young couple without children, you do not necessarily need that larger three-bedroom home.

In saying that, think about a property that is not beyond your means. Think about what you can afford today within your budget knowing, as you get older, you will hopefully increase the equity in your current home to enable you to upgrade to a larger home if you start a family.

Also, your income should increase allowing you to maintain a mortgage and other debts within your new budget.

Always keep in mind there will be unforeseen expenses—vehicle maintenance, clothing, entertainment, etc.

Always plan to put funds aside to alleviate the stress of having to put those expenses on credit cards.

The same goes for the type of mortgage and interest rate you choose today.

There are several things you must think about—choosing a variable or guaranteed rate, whether to opt for an open or closed mortgage.

What will you be doing over the next 10 years? Do you wish to pay down your mortgage quickly? Stay in your home for a few years? Will you be selling and moving into a larger home?

Will you come into extra money to be able to pay down your mortgage? Do you have a low interest rate right now and want to keep that rate?

Closed variable mortgage rates

Should you choose this type of mortgage and decide to pay it off prior to maturity, there will be a three-month interest penalty. You can opt out of the mortgage and into a closed, guaranteed mortgage with the same institution without penalty. As the interest rate will fluctuate you must act quickly to lock into a closed, guaranteed mortgage when the prime interest rate increases.

Open variable mortgage rate

This mortgage is called “open,” meaning you may pay off the entire mortgage without penalty. You can also lock in to a closed mortgage without penalty.

You can put lump sum amounts against the mortgage without penalty, thereby possibly saving you thousands of dollars in interest over the term of the mortgage.

Closed guaranteed mortgage rates

This mortgage is portable to another property should you sell and the interest rate is good on the existing mortgage. You may pay off up to a certain percentage per annum without penalty and increase your payments once annually up to a certain percentage. If you pay off the mortgage prior to maturity there will be a penalty of either three months interest or an interest rate differential.

Credit line

An open credit facility that can be paid out without penalty. This is classified as a “revolving” credit facility, which means that when it is paid down or out you have the ability to go back up to the limit without qualifying.

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