(June 3, 2022)
With all the talk about interest rate hikes, many customers are left wondering what is the best mortgage option when it comes to manageable payments. One might simply conclude that the lowest rate yields the lowest possible payment. This is mostly true, but there’s more to it than the rate. Here are some products and features that achieve the lowest possible payments in today’s challenging market:
1) Select the highest amortization possible
•the higher the amortization, the lower the payment •with a down payment of less than 20% on a home purchase, your maximum amortization is 25 years •when your down payment is 20% or higher, the maximum amortization increases to 30 years •when it comes to refinances it is mainly an industry standard to offer a 30 year amortization. However, keep in mind that a refinance is capped at an 80% loan to value ratio and full re-qualification is required. For example, if your property’s current market value is $800,000, to be eligible for a 30 year amortization your current mortgage cannot exceed $640,000 ($800,000 X 80%). Simply put, refinances are only possible if your loan-to-value ratio is 80% or less at which point the maximum allowable amortization is 30 years.
Here are some examples of monthly mortgage payments with 25 and 30 year amortization periods:
2) Choose a variable rate mortgage with a fixed payment
•even with recent increases to Prime Rate in the past few months, variable rate mortgages still generate lower monthly payments than current fixed term market rates.•But what if Prime Rate continues to increase further? If the thought of increasing rates and payments leave you unsettled, you can opt for a variable rate mortgage that has fixed payments. So, if prime rate increases, your monthly payment will remain the same, but the principle and interest allocations of the your starting payment will adjust accordingly:
DISCLAIMER: it is crucial to have an in-depth conversation with Marko Gelo (a licensed mortgage broker in BC and Alberta) before you consider a variable rate mortgage with a fixed payment. You need to be aware of your unique trigger rate and how it could impact you when your mortgage eventually renews. This product can be both amazing, or catastrophic, depending on your unique qualification circumstances.
3) Recast or Refinance your mortgage to a more manageable payment
The key to this strategy is to understand that you are expanding your amortization with the primary objective of lowering the payment. You will definitely achieve lower payments, but you will not be improving the rate of paying down your mortgage. However, at any time you can increase your payments or make lump sum contributions anytime throughout the term of your mortgage and in no time you can get back on the path and perhaps return to the amortization you were initially at.
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Email Me: gelo.m@mortgagecentre.com
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