Once you start a home buying process, you’ll need to think about your home financing.  To the average Canadian, it is necessary to obtain a mortgage in order to buy a home with a minimum down-payment.

When shopping for a mortgage, you’ll come face to face with difficult choices such as whether to get a closed mortgage or not.


What is a closed mortgage? When is it best to apply for a closed mortgage?

When a borrower chooses a closed mortgage, it means the borrower agrees to follow the terms and conditions of the loan for the entire life of the loan. The loan cannot be re-financed, re-negotiated, or paid off in full before the end of the term without paying a pre-payment penalty.

Depending on your individual situation, it is possible to choose a
closed or open mortgage. The primary difference between these two types of mortgages is flexibility to pay off the loan during the term.

Not sure what type of mortgage is ideal for you? You can request for free mortgage quotes and speak to one of our experienced mortgage brokers for valuable advice.


The Pros and Cons of a Closed Mortgage

A fixed rate, closed mortgage can offer a home buyer the following benefits:

  • Know exactly what your amount of mortgage payment is, regardless of changes to interest rates
  • Pay up to 10% of your original mortgage amount in advance each year
  • Increase your payment up to 2x your regular payment at any time

Despite the moniker, a closed mortgage can still allow for some flexibility to a borrower. You can increase monthly payments or pay in advance an additional amount annually. Such conditions may change from one lender to another.

With a closed mortgage, you are protected from interest rate increases. You get peace of mind that no matter the term loan you finally choose, your interest rate stays the same.


Fixed and Variable Closed Mortgages – Which is better?

One other issue that arises when shopping for a mortgage is whether a fixed or variable closed mortgage is better.

Fixed rate mortgages offer security of monthly payments – you are assured that your mortgage payment will be the same over time. On the other hand, variable rate closed mortgages remain low and will generally be lower than a fixed rate.

In choosing between the two, you must consider the risks, your income, and your lifestyle.


Weigh the Risks Vs. the Benefits

Variable rate mortgages or adjustable rate mortgages offer lower rates than fixed rate mortgage products. One important disadvantage is that with variable rates, they could be lower now but they may increase without warning in the future.

One important consideration you must make is your income. Can you afford a sudden increase in your mortgage payments? Evaluate your financial situation, your current income and potential for future increase in earnings.


Which Mortgage Product Will let you Sleep Better at Night?

If you are certain you can afford mortgage interest rates that may spike 2% or higher, it may be worth it for you to consider variable rates.

Understand the risks you are taking with variable rate mortgages. Finally, decide whether your personality is such that you can sleep well over the uncertainty of your interest rate.

With a variable rate mortgage, you may do well to choose a 5-year term at a fixed rate. You can pay down more than the principal to maximize the benefits of lower interest rates.


The Pre-Payment Trap – What is a Mortgage Pre-Payment penalty?

When applying for a mortgage, you’ll be faced with some hard choices. There are a few things to consider such as pre-payment penalty.

At the time of application, a fixed-rate closed mortgage will seem attractive because it offers a lower rate.

But know this – if you ever want to sell your property early or refinance the loan, the pre-payment penalty will bite you.

Plans may change over time – a pre-payment penalty can stop you from looking for better rates from other lenders in the future or selling your home after a few years.

For this reason, it is critical to understand how pre-payment penalties work and under which circumstances you will have to pay it. In so doing, you will be in a better position to make sound decisions whether getting a mortgage with pre-payment fees is really for you.


A closed term mortgage is ideal if you have no plans of paying off the loan in the short term. Keep in mind that closed mortgages will usually have lower interest rates than open term mortgages.  You get to save on interest costs in the long run.


Fixed Mortgage Rates Let You Plan your Finances

Many people don’t like uncertainty, especially when it comes to interest. First-time home buyers, especially those with growing families, tend to favor fixed closed mortgages because they can plan finances over the term of their mortgage.

Further, purchasing a new home and allocating funds for its maintenance can really use up a chunk of your income. There may not be a lot left in one’s budget for increasing mortgage payments.

You can find a good mortgage rate and payment amount from any one of our mortgage partners that will give you the peace of mind you need.


Where to Get the Best Mortgage Deals in Quebec

You can do an online mortgage pre-approval with any of the mortgage sites on the internet. But how do you know for sure that you have found the best lender available?

It pays to compare mortgage products by going through a mortgage broker that has a variety of options at his fingertips.  You can assess your options and compare closed or open mortgages, interest rates, monthly payment amounts, and other mortgage conditions.

Mortgage brokers work with a number of banks and can offer you a variety of options to suit your needs. Not all brokers are the same; each broker would have different lenders they work with. Thus, it is imperative to compare mortgage product offerings and choose the most advantageous one for you.

Most importantly, by choosing to work with one of our mortgage partners, you can get advice and answers to questions you have about the best mortgage options tailored to your needs.


Shop for the Best Mortgage Rates with Free Mortgage Quotes

If you have decided to purchase a home in Quebec, you need a mortgage broker to help you find the right home financing.

Don’t worry about paying any fees for a mortgage broker. As a potential borrower, you won’t pay professional fees to your broker because they get compensated by your chosen lender.

Choose from over 20 banks in Quebec offering mortgage products to home buyers.

Find the best mortgage to buy a house or condo in Quebec or re-finance your current house. Fill-out our short online form today and receive competitive quotes from over 20 financial institutions.


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