In today's low interest rate market, features can be even more important than rate.
Homebuyers spend a lot of time and energy parsing the features of a prospective purchase. Is it a detached or semi? Does it have a finished basement or granny suite? Are the kitchen appliances clad in stainless steel?
Yet when it comes to choosing their mortgage, features seem to diminish in importance for many homebuyers.
"People tend to focus more on mortgage interest rates and less so on the features of their mortgage," observes Erica Nielsen, vice president, home equity finance at RBC.
While interest rates are critical in determining monthly mortgage payments and total cost of homeownership, certain mortgage features can also provide homebuyers with significant financial benefits. For example, features such as the ability to change payment frequency, double up payments or make annual lump-sum payments can help reduce homeownership costs and retire the mortgage sooner.
"Increasing your monthly payments to bi-weekly will help you pay down your mortgage more quickly," says Ms. Nielsen. "Or, with double-up payments, you can make an extra payment on the same day a mortgage payment is due."
At RBC, a full-featured mortgage lets homeowners pay 20 per cent or more of their original mortgage balance in a year using all of their mortgage features, notes Ms. Nielsen. There are times, however, when homeowners are more concerned about whether or not they can even make that month's mortgage payment. During these bumpy periods, the option to skip a payment can be a lifesaver.
"But keep in mind that the interest you didn't pay is added to the principal of your mortgage," says Ms. Nielsen.
Ross Taylor, of the Toronto-based mortgage broker Mortgage Intelligence, says it's a good idea to find out if a mortgage offers portability in the event homeowners need to sell their house mid-term. With a portable mortgage, homeowners can transfer their mortgage to a new property, allowing them to avoid a penalty for breaking the mortgage.
"Most lenders give you a few months to port your mortgage to a new property, but a few will want you to do this on the day you sell," says Mr. Taylor.
Breaking their mortgage is the last thing homebuyers think about when they're buying a property, he adds.
"But the average duration of a five-year mortgage is actually just 38 months," he says. "Things happen; you might get transferred for work, or maybe you want to refinance and take some equity out of your home."
Alyssa Richard, founder of RateHub.ca, a financial products comparison website, advises homebuyers to check if their lender will register their mortgage as a collateral charge. This makes it easier – and cheaper – to refinance and access more equity, but incurs a legal costs if homeowners decide to switch to another lender come renewal time.
"Also with a collateral charge, the mortgage could be registered at 125 per cent of the current value of your home, so on paper it may look like you have more credit than you do, which can affect your ability to borrow," says Ms. Richard.
For many first-time homebuyers, a major consideration is whether to go with a fixed-rate mortgage, where the interest rate and payment stays the same throughout the term, or variable-rate, which changes based on the lender's prime rate. Ms. Richard says most first-time homebuyers choose fixed-rate, likely because they want predictable payments.
In some cases, new buyers may also go with a fixed-rate mortgage because variable-rate mortgages qualify homebuyers based on a higher rate, which means they need to show they can afford to make higher payments than they would likely need to make, says Ms. Richard.
Whether they're buying their first or third house, homebuyers need to take the time to determine how much they can really afford, says Ms. Nielsen at RBC.
"Make sure you're being judicious about asking 'If I buy a home, will we still be able to go on vacation, or pay a plumber when a faucet leaks," she says. "Think about what's important in your life and then decide which mortgage will ensure you have enough money to enjoy your house, and your life."
|BY THE NUMBERS|
Canada expects to welcome between
260,000 and 285,000
new permanent residents by the end of 2015, the highest planned level of admissions in recent Canadian history.
Main regions of origin:
of first-time homebuyers are new Canadians.
3 in 4
newcomers believe that getting the BEST INTEREST RATE is the most important consideration when buying a home.
of newcomers believe buying a home is a good investment.
In a recent study of first-time homebuyers in Canada,
were born outside of Canada and, of those,
immigrated in the last 10 years.
Source: Genworth Canada Fall 2015 Home Ownership Digest
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