How do I shop for the best mortgage options?

Shopping around for a mortgage? 100% necessary. 

Your Home will most likely be the biggest purchase of your life so why not score a deal in the process?

Before anything, you will need to sit down and develop your own Home buying profile. This includes asking yourself: 

  • How much do I want to spend on a house? 
  • How much am I willing to put down for a down payment?
  • What is my timeline for how long I need to pay off my mortgage?
  • How much do I want to spend on monthly payments? 
  • Am I in a stable position financially to pay for the mortgage for the next 5 years?
  • Do I see a major lifestyle change in the next 5 years? 

Once all those questions are answered, you can come up with specific scenarios that fit your situation. 

In this case, you are willing to spend $450,000 on the purchase price in a 25-year amortization period. You want to put 20% down therefore cancelling out the need to pay for CMHC default insurance. 

For a better understanding of each scenario, plug each value into a mortgage calculator. 

Scenario #1: 

  • Purchase Price: $450,000 
  • Amortization Period: 25 years
  • Down Payment: 20%
  • Mortgage Term: 5-year Fixed (3.59%)  

A $450,000 house with 20% down comes out to a $90,000 down payment which means the mortgage amount is now $360,000. 

Your bank has posted a rate of 3.59% on a five-year fixed term making your monthly payment $1,815. This means you pay $21,780 per year and $108,900 for the entire 5-year term.  

Scenario #2:  

  • Purchase Price: $450,000 
  • Amortization Period: 25 years 
  • Down Payment: 20% 
  • Mortgage Term: 5-year Fixed (2.75%)  

Another bank has offered a five-year fixed rate of 2.75%.  

This rate makes your monthly payment $1,658. This means you pay $19,896 per year and $99,480 for the entire 5-year term.  

In comparison to the first scenario you are saving: 

  • $157 a month 
  • $1,884 a year 
  • $9,420 for the entire 5-year term 

Scenario #3 

Let’s say you’re debating your mortgage term between 3 and 5 years.  

3-Year Fixed Term 

  • Purchase Price: $450,000 
  • Amortization Period: 25 years 
  • Down Payment: 20% 
  • Mortgage Term: 3-year Fixed (3.69%) 

A shorter term with a slightly higher rate may not be a bad option if you’re planning a major change in the next couple of years such as relocating, getting married or starting a family.  

If you choose to go with the 3-year term, you pay will pay $19 more a month.

  • 3 Year Fixed Term (3.69%) = 1,834 / monthly payment 
  • 5 Year Fixed Term (3.59%) = 1,815 / monthly payment  

3-Year = $66,024 (for the entire term) vs.  5-Year = $65,340 (for the first 3 years) = $684 difference 

However, if you broke your 5-year mortgage contract at the end of the 3rd year, you will be handed a huge penalty over thousands of dollars.

Unless you're ready to commit to the 5-year term, the 3-year is your best option.

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Remember the information provided by mortgage calculators are meant for illustrative purposes. 100% accuracy is not guaranteed.  

If you want a realistic explanation on your scenarios, consider reaching out to a HomeHow Mortgage specialist.  

HomeHow Mortgage