Making sense of your mortgage options

Shopping around for a mortgage can be intimidating, and when you’re never sure what little surprises life has in store for you, it’s a daunting prospect to have to select just the right mortgage for your situation. Yahoo Canada Finance spoke with two experts who help navigate the tricky world of mortgages, and offer some advice on how best to brace for any surprises along the way.

Jumping into the competitive housing market

For young professionals living in big Canadian cities, like Toronto and Vancouver, where housing prices continue to climb year after year, it’s easy to want to buy fast, to get in on the real estate market while there are still some almost-affordable houses. On top of that, lenders are offering very low interest rates right now, so it’s hard to resist the lure of getting in while the market is up and rates are low.

Meridian Credit Union, for instance, recently offered Ontarians a fixed mortgage rate of 1.69 per cent for one year, according to a press release. While that low rate may have enticed some young homebuyers to jump on the opportunity to make a long-term commitment to a house that very low rate of interest is not likely to last beyond the first year.

After the first year a homebuyer will likely find themselves locked into a fixed five-year rate of about 2.59 per cent, said Wade Stayer, vice president of sales and service at Meridian, in a phone interview. Homebuyers could also opt for a variable rate mortgage, which fluctuates along with the market – meaning the amount of money you pay each month could go up or down. Whether the homebuyer opts for a fixed or variable rate mortgage, interest rates are not likely to stay as low as they are right now for the entire duration of a mortgage. So, homebuyers need to ask themselves: If my mortgage went up a few hundred dollars per month, can I pay that increased amount and for how long?

“The ideal mortgage really depends on your risk appetite,” notes Stayzer.

And the risk appetite for many younger homebuyers depends on their specific goals and situation. If the homebuyer is a young couple who might have a baby soon, that could lead to one person taking time off work, so that needs to be taken into account when deciding whether to take on a mortgage, pointed out Stayzer. Bottom line? Before taking the plunge on purchasing a first home young people should speak to a mortgage specialist to get a realistic view of what they can afford to pay now and in the many years to come.

When you can’t pay your mortgage anymore

The calls from Calgary and Fort McMurray, Alta., have started rolling in, said mortgage broker Ron Alphonso in a phone interview from his office in Toronto. With oil prices in the gutter many oil-sector workers in Alberta have been kicked to the curb by their employer recently. Now, many of those laid-off workers are finding they can’t keep up with their mortgage payments.

Alphonso’s advice?

“Don’t hide.”

If your family loses all, or part of your income, call your bank or lender as soon as possible and tell them about your situation to try to come to an agreement, perhaps reducing the amount you pay on your mortgage for a certain amount of time, said the broker. Many people just let late payment notices stack up -- don’t do that, advises Alphonso.

Most lenders don’t want to be stuck with a property that might be next-to-impossible to offload during a downturn, as is the case in Wild Rose country these days.

If you get laid off, don’t stick your head in the sand. The minute you realize you can’t make your mortgage payments contact an expert like Alphonso immediately and deal with the situation head on.

To downsize or not to downsize?

Many Baby Boomers may have seen the stream of headlines about lava-hot housing prices over the past few years and wonder if now is the time to cash out.

But, just like young homebuyers, older people must turn the focus from over-arching trends and instead think long and hard about their personal situation to decide what to do.

Many older people want to stay in their homes for as long as possible, said Alphonso. But Boomers must think about the practical realities of doing so. Even if their mortgage is paid off completely they might still have to pay a substantial amount of money to upkeep a large property that is largely going unused. Sometimes in order to be able to afford to stay in the home seniors take in boarders, but then they quickly get in over their heads if the boarders don’t pay their rent, said the mortgage expert.

Downsizing to a condo in the city is not without risk, either. Condo fees generally only go one way (up, up, up) and without any way to make more income retirees may soon find they can’t afford their new swank condo in the core.

Boomers shouldn’t get swayed by general news stories speculating about housing bubbles, but make an informed decision given their current situation and future goals.