If you’re in the market for a mortgage, it pays to know about all the options available to you – including a recent addition to the field, the combo mortgage that can reduce overall mortgage costs while providing a great deal of financial flexibility. But is a combo mortgage right for you? Let’s look closer at your mortgage options and their strengths and weaknesses.
Traditional options
Fixed rate mortgages – offer the security of a locked-in interest rate for a specific term (usually five years). You have the peace of mind of knowing what your payments will be over the term you’ve selected and that’s great for budget management. At the end of the term you will need to renew your mortgage at the prevailing interest rate, which could be much higher than your original rate.
Variable rate mortgages – are currently available at a lower interest rate than fixed rate mortgages but the interest rate you pay is linked to the Prime Rate, which could substantially increase over your mortgage term.
A newer option
Combo mortgages – are gaining in popularity because they fold the benefits and risks of each type of mortgage into one package. A combo mortgage provides a mortgage financing solution that can be either at a fixed rate, a variable rate, or both, a savings/chequing account, and access to your funds by the usual banking methods (cheque, ATMs or online). You can elect to make your payments weekly, bi-weekly, semi-monthly or monthly and improve your ability to make lump sum payments without penalty. You can maximize or minimize repayments – choosing to pay down your debt as quickly as possible (and saving a great deal on overall mortgage interest costs) or to reduce your payments to suit your cash flow or to cover unexpected expenses. You can borrow from your line of credit for investments or for any other reason. You will receive monthly account statements that allow you to track all of your transactions.
When you switch to a combo mortgage, you may have to pay additional legal and appraisal fees and possibly penalty fees to your current mortgage lender if your term has not yet expired.
It always pays to know about your mortgage options. Your professional planner can help you make sound decisions for your life today and as you wish it to be in the future.
This column, written and published by Investors Group Financial Services Inc. (in Québec – a Financial Services Firm), presents general information only and is not a solicitation to buy or sell any investments. Contact a financial advisor for specific advice about your circumstances. For more information on this topic please contact your Investors Group Consultant. Chris Cochrane – Consultant – 800-933-2804
