Obtaining a mortgage is one of the most important decisions you may ever make, and with so many choices and ongoing decisions; the right advice can have a huge financial impact.

Fixed Rate vs. Variable Rate

FIXED RATE
A "fixed rate" mortgage simply means that the interest rate on the money you borrow stays at a locked or "fixed" rate. This means that your interest rate is not subject to change and the rate at which you pay back your loan is always the same. There are some advantages to having a fixed rate when you consider the nature of the inflation rate. The value of your home should continue to increase year to year while the principle amount will continue to decrease.

VARIABLE RATE
A "variable rate" mortgage or below prime rate mortgage is a mortgage where the interest rate is subject to change depending on the prime rate. Most of these mortgage products are based on a formula using the prime interest rate less a discount. For example, if you choose a below prime rate mortgage with a rate of Prime minus 0.5% then your rate would be calculated at any given time using this formula. So if prime were 4% then the interest rate on your mortgage would be 3.5%.

Interest Rate Guarantees

Many lending institutions will guarantee you an interest rate as soon as they receive your application. The guarantee means that if mortgage rates go up, you will get the old, lower rate. If you are buying a house, or switching your mortgage (also called transferring), the guarantee can last from 60 to 120 days (2 to 4 months).

Learn to Save $40,000 - Biweekly!

Most mortgage payments are made on a monthly basis. However, arranging to make accelerated biweekly mortgage payments can have a dramatic effect on the amount of money you have to pay and the time frame before it is all paid off.

Under a biweekly mortgage, instead of making the payments once a month, you make half the payment every two weeks. If your mortgage is $1,000 per month, under a biweekly system it would be $500 every two weeks.

You make 26 payments per year, which is the equivalent of 13 monthly payments rather than 12. The extra payment is than taken directly off the principal, reducing the payment schedule accordingly.

The effect of accelerated biweekly mortgage payments can be dramatic. For example, if you currently have a $150,000 mortgage loan at 7.5 percent fixed interest, you will have paid approximately $330,000 at the end of 25 years. That's a $180,000 in interest!

However, if you use a biweekly payment system, you will pay $290,000 and have it completely paid off in just over 20 years. You save a staggering $40,000 and you pay the loan off nearly 5 years earlier!

An increasing number of mortgage companies are now offering a biweekly payment option. It is even possible to convert your current monthly payments into a biweekly schedule.

Be wary of independent companies offering to do this for you for a fee -- you can do it for yourself by simply phoning your lender or contacting Alberta Equity Mortgages

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