When you’re comparing mortgages, the rate is usually the first thing you look at. Fair enough. You want a payment that works and you don’t want to pay more interest than you need to.
But there’s another question worth asking before you sign:
What would happen if I needed to change this mortgage before the term ended?
You might be perfectly happy in your home today. Three years from now, work could take you somewhere else. Your family might need more room. Or that move from town to the country might finally feel possible.
You don’t need to predict your entire future. You do want to understand what your mortgage allows if your plans change.
Start with your plans, even the uncertain ones
Before getting caught up in fixed versus variable, think about what the next few years might hold.
Are you buying a home you expect to stay in for a while? Is a move for work a possibility? Could you need to refinance? Are you hoping to make extra payments when business is good?
“I’m not sure yet” is a useful answer, too.
For someone buying in Lacombe or Red Deer, a possible move to an acreage might be part of the conversation. For someone else, staying close to family could matter more than staying in the same house. Those details deserve a place beside the interest rate when you compare options.
Fixed and variable each involve trade-offs
A fixed interest rate stays the same for the mortgage term. That certainty can be helpful when you want a predictable mortgage payment and don’t want to watch interest-rate changes.
A variable interest rate can move during the term. Depending on the product, your payment may change, or the payment may initially stay the same while the amounts going toward interest and principal change. A fixed payment doesn’t eliminate the risk of rising rates.
Neither option is automatically right for everyone. Your budget, comfort with uncertainty and possible plans all matter. Choosing variable only because you hope rates will fall leaves out some important questions. Choosing fixed without checking the early-exit terms does, too.
Ask what it would cost to leave early
With a closed mortgage, breaking the contract before the term ends may trigger a prepayment penalty.
For a closed variable-rate mortgage, the penalty is commonly three months’ interest. For a closed fixed-rate mortgage, it is commonly the greater of three months’ interest or an interest rate differential, often called an IRD. The actual contract and lender calculation matter.
An IRD calculation can be affected by the rates the lender uses and the time remaining in your term. Two offers that look similar on the surface can have different early-exit costs.
Ask for an explanation using the specific mortgage you’re considering. If you already have a mortgage and are planning a change, request an up-to-date payout estimate rather than relying on a rough online calculation. There may also be other costs associated with breaking or replacing the mortgage.
Don’t confuse the term with the amortization
Your term is how long the mortgage contract is in effect. Your amortization is the estimated time it takes to repay the mortgage through regular payments.
A 25-year amortization doesn’t mean you’ve committed to one mortgage contract for 25 years. You’ll usually have several terms along the way.
When you’re considering a possible move, the term deserves attention. A shorter term could be worth comparing, but it also means facing renewal sooner. There’s no one-size-fits-all answer.
Bring these questions to the comparison
You don’t need to know all the terminology. Start here:
What happens if I sell before the term ends?
How is the penalty calculated?
Could I move this mortgage to another property, and what conditions would apply?
What happens if I need to borrow more?
How much extra can I pay without a penalty?
If rates rise, what changes in my payment or repayment progress?
Prepayment privileges are the extra payments your contract allows without a penalty. The amounts and rules vary, so check the actual offer.
Choose for your life, not someone else’s
Your neighbour might love their variable mortgage. Your sister might sleep better with a fixed rate. Their preferences can make complete sense without deciding what’s right for you.
If you’re buying or renewing in Central Alberta, I’m happy to help you compare the rate, payment and practical details together.
Tell me what you’re hoping the next few years will look like, including the parts you haven’t figured out yet. That’s a good place to start.
Tara Nevers, Mortgage Broker | Prairie Key Mortgages | Mortgage Architects
General information only. Mortgage features, costs and eligibility depend on the lender, product and your circumstances.
