More to mortgages than just a good rate

Today’s bargain basement mortgage rates have, in some cases, made the home buying dream a reality.

For many first-time buyers, current interest rates will keep borrowing costs low for the next few years.

And, according to an April report by the Canadian Association of Accredited Mortgage Professionals (CAAMP), borrowers who have renewed or refinanced a mortgage in the past year now pay interest rates that are nearly one point lower than their previous rate.

But while securing an attractive interest rate may be the top priority for most borrowers, there’s plenty more information to wade through, says Mary Gronkowski, regional sales director of Mortgage Intelligence.

“When it comes to choosing a mortgage, getting a good rate is just the tip of the iceberg,” she says.

“To ensure smooth sailing, you have to be aware of all the other features that may lie below the surface.”

Below are five tips prospective mortgage holders may consider when choosing a mortgage:

1. Consider an assumable mortgage

A few years from now when you decide to sell your home, your low-rate mortgage could provide an extra selling point.

If your mortgage is assumable, meaning it can be transferred to another borrower, it allows the purchaser to take on your mortgage’s terms and payments as part of a sale.

This can be an attractive incentive, particularly in a higher rate environment.

2. Review refinancing penalties

Given the low rates available today, many homeowners are weighing the benefits of refinancing.

When choosing a mortgage, keep in mind that penalties are often the equivalent of three months’ mortgage payments, or based on an interest rate differential, which is the difference between your current rate and the new rate.

If you consider refinancing, a mortgage broker can help you decide whether the long-term savings outweigh the up-front penalties.

3. Evaluate pre-payment options.

Many borrowers are taking advantage of low interest rates by accelerating payments on their mortgages.

For example, many lenders allow you to double up payments periodically, or make lump-sum payments of up to 20% of the principal once a year.

When negotiating your mortgage, make sure you understand the size and frequency of payments your lender allows.

4. Review skip-a-payment options

Some lenders offer an option to skip a payment without penalty, which may come in handy in today’s economy.

5. Consider portability

Many mortgages have a portability feature that allows you to transfer your existing mortgage over to a new property, but not all portability terms are the same.

Some lenders allow as long as 120 days to transfer the mortgage, but others only allow for a few days or a week.