You're getting ready to take out your mortgage and, of course, you've got the whole interest rate issue in mind, believing it's the ultimate factor in deciding on the terms of the loan. But there are many other factors that are just as important, experts say. Here are a few of them.
Your situation
The mortgage will only be one part, albeit an important one, of your financial commitments. That's why, when deciding which mortgage is right for you, you need to consider your overall financial situation, so that it retains the flexibility that will ensure you achieve all your goals. The first step is to establish your budget," says Aline Aoueiss, Mortgage Specialist, BMO Bank of Montreal. "As a general rule, it's not wise to spend more than 30-35% of your gross income on your mortgage," she says.
The importance of pre-qualification
The COVID-19 pandemic has changed the economic environment in many ways, and the real estate industry has not been immune. It led to a significant drop in interest rates. This has had the effect of stimulating demand from home buyers, which has led to a significant increase in prices," says Aoueiss. "That's why it's important for homebuyers looking for a new home to have their lender pre-qualify their mortgage to ensure their offer is considered," she says.
Diversity of choice
There are a variety of mortgages available that allow the borrower to choose the term that best suits them. In fact, the terms of these loans can vary from one day to ten years. The line of credit will allow the borrower to pay back the amount he or she wants at any time. As for conventional loans, the most popular terms vary between one and five years, but there are also seven and ten year terms for those who prefer to freeze the interest rate for a longer period," explains Nicolas Fréchette, Director, Financing Product Management, at Desjardins, who notes that these longer terms generated a certain craze during the pandemic, since interest rates were at their lowest.
Borrower profile
Individuals are continually told that their savings should be managed according to their investor profile. The same is true for managing their liabilities, which must take into account their borrower profile," explains Enrik Brassard, Assistant Vice-President, Residential Financing, at National Bank. For example, the risk associated with a variable rate mortgage is not ideal for borrowers who prefer to know in advance what their liabilities will be. "People often spend a lot of time and energy determining which investments are right for them, but often don't worry about properly managing their liabilities according to their risk tolerance," he says.
Options for couples
It is not uncommon for couples to have different borrower profiles. In this case, it is possible to make two mortgage choices and combine them, explains Nicolas Fréchette. For example, one part could be a variable rate and the other a fixed rate. You can also combine two fixed-rate mortgages, one with a short term, such as one year, and one with a longer term. This will reduce the risk when an interest rate increase or decrease occurs.
Options to protect yourself
The borrower can protect himself against the possibility of not being able to make his payments through insurance, explains Enrik Brassard. This can be life insurance that will protect in case of death, or severe disability or incapacity insurance. The borrower can also establish options with his lender in case he has to cancel the terms of the loan. All of these options in the event of a breach of the terms should be established at the outset when the loan is taken out.
Source : Article by Jean Gagnon on the lapresse.ca on the 20th march of 2022
Link : https://www.lapresse.ca/affaires/portfolio/2022-03-20/hypotheque/au-dela-du-taux-d-interet.php
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