Understanding mortgage financing

Before you can think about decorating your future first home, you have to choose a mortgage. Even if comparing terms and interest rates makes you want to run back to paint finishes and colours, you should still learn about the key elements of your future mortgage. Here are some tips from Desjardins for making sense of it all. 

Terms from 6 months to 10 years

A term is the lifespan of your contract, the time period where you agree to a set of financing conditions (also called "terms"). Terms are in effect for a specified period and then the contract needs to be renewed.

• A short term, from 6 months to 2 years for example, gives you the most flexibility if you're anticipating changes in your lifestyle soon.
• The most common term in Canada is 5 years, which allows you to make stable payments over a predictable period.
• There are also 7- and 10-year terms available for closed fixed-rate loans. If you're ready to stick with your lender for that period, a long term offers stability and a guarantee that your mortgage payments will remain the same for all those years.

A Desjardins advisor can help you decide which term best suits your current and future lifestyle. Think ahead to at least the end of the proposed term to make an informed decision!

Closed loans and open loans

Closed mortgages are the most popular, since they have interest rates that are often lower than open mortgages. A closed loan at Desjardins means that a term has been set and that fixed payments are planned for the entire duration of the loan. There's also a clause in the contract lets the borrower make extra payments, up to 15% of the loan amount each year, without any prepayment charges. The contract also allows the borrower to make larger regular payments (up to twice the regular payment amount) once a year without any prepayment charges. Also, the contract specifies prepayment charges, which would apply if you paid off the mortgage before the end of the term. Terms and conditions may differ from one lender to another.

An open mortgage can be repaid at any time during the term, in whole or in part, without any prepayment charges. This flexibility usually comes with a higher interest rate, though. Homeowners often choose this type of loan as a temporary solution, like when they're waiting for a large influx of cash to put toward the loan or if they expect to sell the home the loan is for soon.

Take some time to compare mortgages before you make a decision.

With Desjardins, rates for most mortgages can be guaranteed for 90 days when you apply for financing. When it's time to renew, contact your advisor to discuss the possibility of renewing up to 120 days before the end of your term.

Fixed and variable rates

A fixed interest rate remains the same throughout the loan term, regardless of market fluctuations. The other option, a variable interest rate, is based on the lender's prime rate and it changes as the market moves.

Whether you choose a fixed or variable rate, you'll have fixed payments:

• For a fixed-rate loan, your regular payments are determined in advance and you'll know exactly how much you'll still owe at the end of the term.
• If you choose a variable-rate loan, it's important to know that the portion of the payment that will go to paying down your principal will vary based on the lender's prime rate. That means that when you sign your mortgage documents you won't be able to know what the principal balance will be at the end of the term.

If you can handle the uncertainty in rate changes that comes with a variable rate mortgage, it may allow you to pay down more of the principal on your loan during the contract term. An advisor can help you determine your tolerance to rate changes.

Talk to a Desjardins advisor about your plans and try out our tools

As soon as you start to get serious about buying your first home, contact your Desjardins advisor. You can use our simulator to get an accurate picture of your borrowing capacity and obtain a mortgage preapproval.

Make an appointment with a Desjardins advisor for personalized support.

Happy house hunting!

This partner content is presented by Desjardins.