After weeding through the seemingly billions of properties available in the GTA and finally deciding on a place of residence, buyers are often flustered when they’re faced with deciding upon the best mortgage plan. While this step should actually occur beforehand — as I personally exercise with each of my friends and clients — suffice it to say that it must be done. Here are a few insights:
Ideally you should be looking at five or 25 per cent down, the rationale being that there are better places to put your money, as the insurance premiums between five per cent and 24 per cent are not so significant that they cannot be more than recuperated through modest investment. Does that mean anyone who puts down 14 per cent is wrong? Certainly not. It only means that, ideally, you have better places to put that extra money, and if you don’t you may wish to make that your next goal in your investment portfolio after the purchase of your home/condo. Some circumstances logically necessitate as large a down payment as possible, even if that down payment falls below the 25 per cent threshold (set by CMHC, determining whether you’re liable to pay mortgage insurance). For instance, under the RRSP contribution plan, pulling as much out of your RRSPs, up to $20,000 per person, makes most sense as the money is tax free.
Then there’s the question of fixed versus variable interest rates. This, in my book, is a personal preference dependent on one’s personality, granted that the ability to lock into a fixed rate is guaranteed at any time, and at the existing standard rate. If you’re actively involved in the economics of our market, you should know when interest rates are going up and you can choose to lock in. On the other hand, as is my recommendation to most buyers, the fixed rate represents security and comfort at the cost of saving some money on interest.
Finally there is the payment structure — weekly, monthly, bi-weekly, accelerated, etc. My recommendation is to align your payments with your paycheque and utilize automatic withdrawals. It makes most sense from all respects; convenience, practicality, and comprehension. There is much to discuss when it comes to the differences between types of payments, their advantages and disadvantages, and if you have more questions feel free to e-mail me at amitp@rogers.com.
As well, feel free to visit www.amitpaul.cafor tons of free information, articles and advice for buyers and sellers alike.
Happy hunting!
