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Buying a home is a milestone that many perceive as a sign of success, socioeconomic-wise. It is also one the most daunting tasks any adult will have to undertake in his entire lifetime. Plunging into the buying a house when you are unprepared can cost thousands and sometimes hundreds of thousands if you are not careful. It can also cause you to lose everything you have ever worked hard for as mortgages tend to eat up so much of your budget. In order to avoid this kind of pitfall, it is always best to understand what you are getting into when you buy a house. The best way to do this is to understand the mortgage terms.

The mortgage terms vary from one lender to the other. In Canada, there are many different mortgages that you can choose from. Here are some very difficult choices you would have to make in order to find the right mortgage that fits you and your budget.

 

The first thing you need to consider is whether you want a fixed or a variable rate. Fixed rate mortgage is when your interest rate does not change over the course of your mortgage. This is usually stated in the agreement. This kind of rate means you won’t get surprised by the amount that you have to pay. Fixed rate means fixed monthly mortgage payments from the time you start paying until the end of your mortgage period.

A variable rate mortgage means you get different interest rate during the course of your mortgage payments. You could be paying 3% interest this year and 4% next year and so on. The advantage of this kind of rate is that your interest rate will depend on the market movement. If the market moves upward, you could be in for a larger mortgage payment this month. But it the prices drops, your payments may also be less than usual.

The number of years that you would have to pay your mortgage is another thing that you have to look into. Several periods are available including 10 year mortgages, 15, 20, 25 and 30 years mortgage. How you choose will depend on your capacity to pay. If you know that you can pay bigger monthly mortgage amounts, and would like to finish paying your loans sooner, you can go for the lesser number of years. But if you feel like you cannot pay huge payments monthly or that you need to have some left in case of a rainy day, you can choose a longer time period.

When comparing mortgage terms, you need to look beyond today and look further into your future plans. These will affect your spending and how you can make payments on your mortgage. If you are planning to have a baby or open a business in the near future, factor the cost of these into your monthly budget before buying that house. Look at expenses that you might have to incur once you have a baby. These are some of the things you will need to consider as well.