Buying your first home or even your next one can feel like a massive step. It really doesn’t have to be confusing, though. I’ve spent over 25 years helping people like you navigate complex financial decisions, and when it comes to mortgages, I’ve found that asking a few smart questions upfront makes everything much clearer and less stressful. Think of this as our conversation over coffee, getting to the heart of what you need to know.
1. Which Mortgage Type Fits Your Plans?
Every mortgage generally falls into one of three buckets: fixed rate, variable rate, or a blend of both.
- A fixed rate means your interest and payments stay exactly the same for the entire term. This is fantastic if you love predictable budgeting and want certainty.
- A variable rate often starts lower, but those payments can go up or down as the Bank of Canada adjusts its key rate. You’re trading a bit of predictability for potential savings if rates drop.
- A combination mortgage lets you split your loan, taking part at a fixed rate and part at a variable. It’s like having a foot in both camps.
So, here’s what you need to consider: How long do you plan to stay in your home? And how comfortable are you with your payments possibly changing? Let’s talk through what makes the most sense for your situation.
2. What’s the True Cost? Posted Rate vs. APR
When you see a mortgage rate advertised, it’s usually the “discounted rate” you’d actually pay each month. But that’s not the full story. Lenders also have a “posted rate,” which is their standard rate before any discounts.
The most important number for you, though, is the Annual Percentage Rate (APR). This isn’t just the interest rate; it includes most of the lender’s fees, like application or administration charges, spread out over the term.
Think of it this way: comparing APRs across different lenders gives you the clearest picture of what an offer will really cost you over the long run. Don’t just look at the low number—look at the whole picture.
3. Which Fees and Penalties Should You Expect?
Beyond the interest, there are a variety of fees that can pop up and catch you off guard. We want to avoid surprises, right? You might encounter:
- Application fees
- Appraisal and legal fees
- Property transfer taxes
- Discharge fees (when you pay off or switch mortgages)
And if you decide to break your mortgage early, or pay more than your allowed prepayment limit, the lender will charge a penalty. It’s essential to know these upfront. When we chat, I’ll provide you with a written fee schedule so you know exactly what you’ll owe, both now and if your plans change down the road.
4. How Much Can You Actually Afford? Stress Test and Ratios
Lenders use a “stress test” to make sure you could still comfortably manage your mortgage payments if interest rates were to rise in the future. It’s a smart way to ensure you’re not stretched too thin.
They also look at two key ratios:
- Gross Debt Service (GDS) ratio: This compares your housing costs (like mortgage payments, property taxes, and heating) to your income.
- Total Debt Service (TDS) ratio: This takes all your debts into account—housing costs plus car loans, credit card debt, and so on—and compares them to your income.
By running your numbers through these measures, I can tell you the maximum mortgage you qualify for. More importantly, we can figure out a payment that keeps you comfortable, even if rates shift or unexpected expenses come up.
5. How Flexible Are Your Prepayment Options?
Let’s say you get a bonus, a gift, or you’ve just saved up some extra cash. You’ll want to use that money to pay down your mortgage faster and save on interest.
Most lenders offer options like:
- An annual lump-sum payment (typically 10-20% of your original mortgage amount).
- The ability to increase your regular payments by a set percentage.
Exceeding these limits can trigger a penalty, so it’s good to be aware of them. We’ll go over all the prepayment details so you can plan a strategy, maybe over five or ten years, to reduce your interest costs and own your home sooner. That’s a goal many of my clients appreciate.
Next Steps
By covering these five areas with your mortgage broker, you’ll gain confidence, avoid hidden fees, and choose the best mortgage for your needs.
Ready to get personalized advice and step into home ownership with a clear plan? Give me a call.