Home Ownership Buying your own home is an exciting experience. Paying off your mortgage is even nicer. Buying a tailor-made mortgage can mean a faster pay-off and money saved. Making lump sum payments on the mortgage's principal, "prepayment", is one key to faster pay-off. But first you have to pave the way by arranging the best mortgage for you.

Conventional home mortgages are now fixed-rate, short-term instruments. At the end of the term (usually one to five years) the loan matures and the outstanding principal becomes due.

Whether you're getting a new mortgage, renewing with an old lender or refinancing with a new lender, you should consider all the angles:

• rate,

• open vs closed mortgages,

• frequency of interest calculations,

• terms of amortization,

• realty tax accounts,

• closing costs,

• payments and cash flow,

• second mortgages, and

• assumability.

Rates vary from institution to institution, even if the term is the same, and the quoted interest rate is of little value unless the lender guarantees it until 30 days before the closing.

You can choose between fixed or floating interest rates. The floating rate fluctuates and is based on the Bank of Canada interest rate. A fixed-rate mortgage allows you to budget better.

An open mortgage allows prepayment. A closed mortgage allows only regular monthly payments. Prepayment allows you to pay on the principal on an irregular basis. On a partially open loan, prepayment may be allowed only on the anniversary of the closing. You may have to pay a penalty if you want to prepay at any other time. On a fully open loan, you can pay whatever money you can afford at any time. Prepayment privileges are a key factor to consider as they provide means for homeowners to increase their equity rapidly.




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December 4, 2008