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.

Financial Life Stages Are Changing - Good or Bad?

Throughout most of the 1900’s most households’ financial life went through the following stages:

Accumulation – 20 to 35 years
  ·    Building up debt as many purchases require borrowing (Mortgage, credit cards, student loans)
  ·    Furniture is second hand, vehicles are used
  ·    Getting your education and starting career expertise
  ·    Budget is usually kept very controlled from necessity
Mid Accumulation – 35 to 50 years
  ·    Start saving for retirement,
  ·    Paying down big debt like mortgages and car loans
  ·    Some purchases are made for quality rather than price (vehicle, furniture)
  ·    Saving for children’s education
  ·    Get serious about financial planning with tax and estate planning