Mortgage Planning
Mortgage Planning: Simplify Your Life with a Mortgage Strategy
A mortgage strategy is more than just securing a loan; it's about aligning your financial goals with your housing needs. The decisions you make about your mortgage can affect your financial situation both today and also over the long term, so it only makes sense to consider your mortgage when thinking about your overall financial plan.
IG Wealth Management can provide the expertise of both a mortgage advisor and a financial advisor, ensuring that both strategies are integrated into your financial plan. Learn more about the mortgage planning process below or view IG Wealth Management’s posted mortgage rates here.
The mortgage planning process can be broken down into 3 basic steps:
Step 1: Understanding Your Financial Situation
Most successful strategies start with assessing where you are now, then setting goals about where you want to be in the future. In the context of mortgage planning, this includes:
Assessing your Current Financial Situation: Take stock of your financial assets, liabilities, income, and expenses. This includes evaluating your savings, investments, debts, and monthly cash flow. Understanding your current financial picture provides valuable insights into your overall financial health and informs your mortgage decisions.
Determining your Short-term and Long-term Financial Goals: Reflect on your short-term objectives, such as purchasing a home or refinancing an existing mortgage, as well as your long-term goals, such as retirement planning. Clarifying your financial goals helps prioritize your mortgage requirements and ensures that your housing decisions align with your broader financial objectives.
Evaluating your Risk Tolerance and Financial Priorities: Consider your tolerance for financial risk and your preferences regarding debt management. Assess factors such as job stability, future earning potential, and comfort level with debt. Also identify your financial priorities, whether it's maximizing savings, minimizing debt, or investing for the future.
Step 2: Exploring Mortgage Options
Understanding the types of mortgages, their terms, and how they align with your financial goals is essential for making informed decisions. Here are some of the fundamental mortgage concepts:
Fixed Rate vs Variable Rate
Most people are familiar with mortgage rates; you see them advertised everywhere and humans love to compare numbers. However, the type of mortgage rate can have a significant impact on how much interest you pay over the term. There are 2 common types of mortgage rates:
Fixed-Rate Mortgage: With a fixed-rate mortgage, the interest rate remains constant for the entire term of the loan, typically ranging from one to five years. This provides stability and predictability, as your monthly mortgage payments remain the same throughout the term. Fixed-rate mortgages offer the advantage of knowing exactly how much you will pay each month.
Variable-Rate Mortgage: A variable-rate mortgage, features an interest rate that can fluctuate periodically based on market conditions. Typically, the initial interest rate is lower than that of a fixed-rate mortgage, making it an attractive option for buyers seeking lower payments. However, since the interest rate adjusts with the prime lending rate, payments may go up or down over the course of the term. While this might sound unappealing for some, variable-rate mortgages are often money-savers. There are also some types of variable-rate mortgages that allow for a consistent payment, instead having the principal and interest portions change based on market conditions.
Which type of mortgage rate is right for you? This decision will be very much a personal choice based on your financial profile and risk tolerance. There is no way to say that one is better than the other without looking closely at your circumstances and the mortgage being offered. However, although historical trends aren't necessarily indicative of future performance, some studies have found that a borrower is likely to pay less interest overall with a variable-rate mortgage versus a fixed-rate mortgage. Check out IG Wealth Management’s fixed and variable mortgage rates here.
Open vs Closed
With most people focused on rates, an often overlooked feature of the mortgage is whether it is considered to be open or closed:
Open Mortgage: An open mortgage allows borrowers to make prepayments or pay off the entire mortgage amount without penalty before the end of the term. Open mortgages offer flexibility, but they typically have higher interest rates than closed mortgages.
Closed Mortgage: A closed mortgage has prepayment restrictions, meaning borrowers are limited in their ability to make extra payments or pay off the mortgage before the end of the term without incurring penalties. Closed mortgages often offer lower interest rates than open mortgages and are more suitable for borrowers who don't anticipate making significant prepayments.
Having the flexibility to make additional payments towards your mortgage or pay it off completely can offer significant advantages if your financial circumstances change. Additional payments can reduce the amount of interest you pay on the loan while being able to pay off the entire mortgage without penalty can save a lot of money in the event that you need to refinance or sell the home.
High-Ratio vs Conventional
With the basic mortgage rates and prepayment terms under your belt, there are a couple more technical terms to be aware of: “conventional” mortgage and “high-ratio” mortgage. You may have heard these terms used before by financing professionals. Here’s what they mean:
Conventional Mortgage: A conventional mortgage is a loan that does not exceed 80% of the home's purchase price or appraised value. Borrowers with a down payment of at least 20% of the purchase price typically qualify for a conventional mortgage. Conventional mortgages often offer more favourable terms and lower interest rates compared to high-ratio mortgages, which require mortgage insurance for down payments of less than 20%.
High-Ratio Mortgage: A high-ratio mortgage is a loan that exceeds 80% of the home's purchase price or appraised value. Borrowers with a down payment of less than 20% are required to obtain mortgage insurance to protect the lender against default. High-ratio mortgages allow buyers to purchase a home with a smaller down payment, but they may incur additional costs in the form of mortgage insurance premiums.
What does this mean for homeowners? Essentially, the more money you have available for a downpayment, the fewer additional fees you will pay over the term of the mortgage. This makes intuitive sense since you are borrowing less money; however, 20% of the home’s value is considered to be a “special number” since having anything less than this amount as a downpayment is considered to be a higher-risk loan in the eyes of the lender (and the government). There are several additional fees and conditions that are required for down payments of less than 20%, so if you are able to meet this threshold, it’s usually a good idea.
Step 3: Integration With Your Financial Plan
After your financial profile has been thoroughly assessed and the mortgage specifics have been considered, your IG Wealth Management advisor can help you integrate a mortgage strategy into your broader financial plan. This includes considering your financial goals, such as saving for retirement, building an emergency fund, or investing in education. Mortgage payments should fit comfortably within your budget while allowing you to make progress toward whatever goals you may have. Income, expenses, and other financial obligations will all be carefully assessed to ensure a sustainable mortgage strategy over the long term.
Owning a home is one of the most significant investments of your life. It’s something to be proud of, especially here in British Columbia where home ownership is only a dream for many people. Having a solid mortgage plan and financial strategy is important, now more than ever, for ensuring your priorities are balanced and your overall financial strategy is enhanced by home ownership. IG Wealth Management is here to help make that possible.
In the same way, a diversified investment portfolio helps to build wealth, diversification through real estate may be part of your wealth-building strategy. With our competitive residential mortgage product suite and team of experienced Specialists on hand, we will structure solutions to ensure your wealth is protected and continues to grow.
Mortgages are offered by Investors Group Trust Co. Ltd., a federally regulated trust company, and brokered by nesto Inc. Licences: Mortgage Brokerage Ontario #13044, Saskatchewan #316917, New Brunswick #180045101, Nova Scotia #202507230; Mortgage Brokerage Firm Quebec #605058; British Columbia, Alberta, Manitoba, Newfoundland/Labrador, PEI, Yukon, Nunavut, Northwest Territories.
*In Ontario, a mortgage agent, and in New Brunswick and Nova Scotia, a mortgage broker or a mortgage associate. *In Quebec, a mutual fund representative.
Mortgage advisors are licensed professionals and equivalent to the following titles per province: Sub Mortgage Broker/Mortgage Broker in British Columbia, Mortgage Associate/Mortgage Broker in Alberta, Associate/Mortgage Broker in Saskatchewan, Salesperson/Authorized Official in Manitoba, Mortgage Agent/Mortgage Broker in Ontario, Mortgage Broker in Quebec, Mortgage Associate/Mortgage Broker in New Brunswick, Associate Mortgage Broker/Mortgage Broker in Nova Scotia, or Mortgage Broker in Newfoundland & Labrador.