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How to choose the right type of mortgage when buying a home in Brampton

Brampton’s red-hot real estate market has become so competitive that getting pre-approved for a mortgage is no longer optional if you’re looking to buy a home there. But with so much at stake, a mortgage is not something to rush into.

Like finding the right Brampton real estate lawyers and realtors, you need to shop around before you decide on the right mortgage for you. This means taking a lender’s reputation and experience into consideration and not just the terms or interest rate being offered.

You’ll learn the basics of mortgages in this post to help you decide on the what type of mortgage contract works best with your financial needs.

Table of Contents

Amortization period

This is overall amount of time it takes to pay a mortgage back in full. You can reduce the amount of your mortgage payments by choosing a longer amortization period but doing so means paying more money in interest. If your down payment is less than 20%, the maximum amortization period in Canada is 25 years.

Mortgage terms

The conditions of your mortgage contract must be renewed every so often. The amount of time between these mortgage renewals is known as the mortgage term. They can range from a few months to a few years. Your choices are short-term, long-term and convertible.

Choosing a short-term mortgage gives you the ability to renegotiate your mortgage sooner rather than later which is ideal if you think you’ll be moving in the near future or if you feel you’ll be able to get a better interest rate when the term is up. The downside to a shorter term is that you may end up having to pay a higher interest rate if they’ve increased when you renew.

A long-term mortgage may be better if you prefer to lock in your current interest rate and want to know what your mortgage payments will be to budget your finances. However, locking in your interest rate could mean missing out on a better one if rates go down.

A convertible term allows you to extend a short-term mortgage to a longer term at the interest rate provided by lenders for their long-term mortgages.

Interest rates

Interest rates can either be fixed or variable. These are the main differences:

With a fixed rate you will pay more if interest rates go down. But if you feel interest rates will be increasing, this would be the better choice. Some people also prefer the stability of having the same mortgage payments during the term.

Variable interest rates will increase or decrease based on the prime lending rate over the term of the mortgage.

Open & closed mortgages

Open mortgages allow you to make extra payments on your mortgage outside of your regular payments. These are known as prepayments. Open mortgages also allow you to pay off the mortgage completely, renegotiate the mortgage and change lenders before the end of the mortgage term without paying a penalty.

Closed mortgages generally have lower interest rates than open mortgages but they limit the number of prepayments you can make towards the mortgage. A closed mortgage may be the right choice if you plan on staying in your home for the duration of the mortgage term.

Payment frequency

You can choose to pay your mortgage in monthly, semi-monthly (twice a month), biweekly (every two weeks) or weekly installments. There are also options for accelerated biweekly or accelerated weekly payments that allow you to make an extra month’s payment every year to help you pay off the mortgage faster.

Check out the Government of Canada’s mortgage calculator to get a better picture of what your mortgage payments will look like based on the mortgage terms.

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