Mortgage Musts

By NDH Staff

For the first-time new homebuyer, getting a mortgage can be intimidating stuff. Fortunately, once you know a little bit about them, mortgages aren't that complicated and the more you know, the more likely you are to find the right mortgage for you and your new home.

First off, you'll need to know the difference between a fixed rate or variable rate mortgage. With a fixed rate mortgage the interest rate remains fixed, or locked in, and with a variable rate the interest rate will fluctuate throughout the term of your mortgage, according to the prevailing market rates. Generally a variable rate mortgage in a time of low interest rates will mean that less money is paid out over the course of the term. However, there is always the chance that rates can go up.

Some variable rate mortgages offer capped or protected rates, meaning a maximum rate of interest is set for the buyer. Even if rates rise, they will never exceed a certain point.

The term of your mortgage is the length of time during which the conditions of your mortgage will remain the same. The term will vary depending on what type of mortgage you choose. A short-term mortgage is usually less than three years and any more than that is considered long-term. There is generally a higher interest rate attached to long-term mortgages, a trade-off for having several years at a stable rate, which may be a plus when interest rates are rising.

Paying weekly or biweekly, instead of monthly, will lower the total amount of interest paid and save you money. Choosing a shorter amortization period-the number of years it takes to pay off the loan-will also save you interest payments.

Paying the least amount of interest possible on your mortgage means that your new home or condo costs less in the long run?no matter what type of mortgage you decide on.

Here's how you can pay less interest:

1. Increase your down payment. The larger the down payment, the smaller your mortgage, which means less interest.

2. Frequent payments. Paying down your mortgage in a weekly or biweekly payment schedule will mean you pay less interest than if you make monthly mortgage payments.

3. Shorter amortization period. The longer your repayment period the more you will be paying in interest. You can save money by paying your mortgage off in less time.