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Mortgage | Beyond the interest rate



You’re getting ready to take out your mortgage and, of course, you have the whole question of the interest rate in mind, believing that this is the ultimate factor that will lead you to decide on the terms of the loan. But there are many other equally important factors, say the experts. Here are a few.

Your situation

The mortgage loan will only be a part, although quite important, of your financial commitments. That’s why, when deciding which mortgage loan is best for you, you need to take your overall financial situation into consideration, so that it retains the flexibility that will ensure you achieve all of your goals. The first step will be to establish your budget, explains Aline Aoueiss, mortgage specialist, BMO Bank of Montreal. “As a general rule, it is not advisable to devote more than 30-35% of your gross income to paying off the mortgage,” she reiterates.


Aline Aoueiss, mortgage specialist, BMO Bank of Montreal

The importance of prequalification

The COVID-19 pandemic has changed the economic environment in many ways, and the real estate sector has been no exception. 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, explains Aouaiss. “Hence the importance for buyers looking for a new property to have their mortgage prequalified by their lender in order to ensure that their purchase offer will be taken into consideration,” she says.

Diversity of choice

There are mortgages of all kinds that allow the borrower to choose the term that suits him best. In fact, the term of these loans can vary between one day and ten years. The mortgage line will allow the borrower to repay the amount he wants at any time. As for conventional loans, the most requested terms vary between one and five years, but there are also terms of seven and ten years for those who prefer to freeze the interest rate for a longer period, explains Nicolas Fréchette, director , management of financing products, at Desjardins, which notes that these longer terms generated a certain enthusiasm during the pandemic, given that interest rates were at their lowest.

Borrower profile

Individuals are continually told that the management of their savings should be done according to their investor profile. The same is true for the management of their liabilities, which must take into account their borrower profile, explains Enrik Brassard, assistant vice-president, residential financing, at the National Bank. For example, the risk associated with a variable rate mortgage is not ideal for borrowers who prefer to know in advance the commitments they will have to meet. “People often take a lot of time and energy to figure out what investments are right for them, but often don’t care about managing their liabilities well based on their risk tolerance,” he says.

Options for couples

It is not uncommon for a couple to have a different borrowing profile. It is possible, in this case, to make two choices of mortgage loans and to combine them, explains Nicolas Fréchette. Thus, one part could be variable rate and the other part fixed rate. You can also combine two fixed-rate mortgages, one short term, such as one year, and another longer term. This will reduce the risk when an interest rate rise or fall occurs.

options to protect yourself

The borrower can protect himself against the possibility of no longer being able to make his payments through insurance, explains Enrik Brassard. It can be life insurance that will protect in the event of death, or even serious disability or incapacity insurance. The borrower can also establish options with his lender in the event that he may have to terminate the conditions of the loan. All these solutions in case of non-compliance with the conditions must be established at the outset when the loan is contracted.

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