Which Mortgage Is Best?

There are a variety of mortgages, and each one has its advantages and disadvantages.

A fixed rate, closed mortgage - about 75% of mortgages across Canada are fixed rate, closed mortgages.  Typically someone locks in their rate and payment for 5 years.  This lets consumers know what their payment will be every month and how much will be left on the mortgage at the end of the 5 year term.

A variable, closed mortgage - this mortgage has a rate that floats with a financial institution's prime lending rate and is often for a 5 year term.  Usually the payment is set at the current rate and then the actual interest rate goes up and down throughout the mortgage.  The advantages are that this rate is usually lower than a fixed rate and that if the rate decreases your payment is paying more towards the mortgage principal.  However, the disadvantage is that if the rate goes up you will pay more in interest and it is possible that very little of the principal is paid down by the end of the term.

Costs of a Home

A couple of weeks ago I spoke with a 23 year old, single young man who has been living with his parents for the past 18 months.  He was talking about saving up money for a down payment on a home.  He already has a pretty good idea about what mortgage payment he can afford.  He is buying a small house, with the hope of moving into a larger one in several years.

I threw him for a loop, though, when I asked him about property taxes and maintenance costs.  He had not thought about those costs.  He figured property taxes would be about $400, but when I told him to expect property taxes to be around $2,000 or more his jaw almost hit the floor.  He had no idea the taxes would be that high. 

There are always added costs to owning a home.  Here are a few I could think of:
Property Taxes - these always seem to be more than you thought, and they tend to increase pretty much every year, sometimes by several percent.  It often means having to put away $150 to $300 away each month to pay for them, a cost that can really add up.