A Beginner's guide to arranging a mortgage

Over the years, I’ve worked with clients – from accountants to engineers – whose ease with numbers would make your head spin. But, in my experience, such “mathletes” are far outnumbered by those of us who face financial calculations with apprehension.

Thank heavens for mortgage specialists. Whether you opt to go through a broker or your financial institution, a good specialist will guide you with patience and know-how through the intricacies of choosing a mortgage.

Remember, a mortgage pre-approval is the way to go. This means visiting your specialist before shopping for a home, and obtaining a realistic budget to work from. Pre-approval also speeds up the purchasing process once you’ve found your perfect home.

In comparison with the early 1980s, when mortgage rates surpassed 20 per cent, today’s rates – which tend to hover below four per cent – seem astonishingly low. But substantial savings can still be found by choosing certain mortgage features over others. Here are some of the most basic options you’ll encounter:

Term length

A term is a set length of time, typically ranging from one to 10 years, in which a certain mortgage rate applies. At the term’s end, you renew your mortgage for another term. The shorter the term, the lower the interest rate; however, by choosing a longer term, you’re insuring yourself against the possibility of skyrocketing mortgage rates in the future.

Fixed rates, variable rates and capped rates

A fixed interest rate remains the same throughout the term, while a variable rate rises and falls along with the prime rate. While the second option means accepting some unpredictability, it may yield greater savings than a fixed rate.

A capped rate is a type of variable rate that cannot exceed a set upper limit. If interest rates are low but you’re facing a longer closing date, you may choose to be locked into a capped rate, which will apply once your mortgage payments begin.

Frequency of payments

Most lenders offer weekly, bi-weekly, semi-monthly or monthly payments. While at first glance the difference between bi-weekly payments (every other week) and semi-monthly (twice a month) may seem unimportant, it works out to two more payments per year. Ultimately, those extra installments could take a couple of years off the life of your mortgage.

Of course, there are many more mortgage features that your specialist can introduce to you. Trust me: By the end of the process, you’ll feel like a specialist yourself.