Finding the lowest mortgage rate for a new loan or renewing an existing loan is not always the overriding factor in deciding which lender is right for you.

Here are some other mortgage terms to consider:

1. Term: The term will naturally affect your interest rate. Generally, the shorter the term, the lower the rate. But think about where you will be in one, three or five years with the property in question. Will you be selling the property? Will you need more money and want to refinance? Will you have extra cash and may want to pay down the mortgage? Having the mortgage term expire whenever you feel something will happen that may change how you want to handle the mortgage will be a huge advantage for you. It will be like starting all over again and leave lots of options open for you without any kind of penalty.

2. Prepayment Penalty: If you are trying to become debt free, read the fine print carefully concerning repayment. Is the prepayment amount fixed as a percent of the original loan or the current outstanding balance? How often can you make a prepayment? Is the prepayment only possible on a specific day? Is it cumulative so that if you miss a prepayment one year, can you catch up the following year? What is the penalty to prepay the whole loan? What happens if you want to sell the property?

3. Transferability: See if the loan can be transferred to another property if you sell the current property. Sometimes you will have an excellent rate mortgage that you may want to take over to a new property. Or, you may use the low rate as a selling feature and may want the new purchaser to take over the mortgage. In that case, check to see if you are still liable for the loan if there is a default under the mortgage after you sell the property?

4. Amortization period: Establish what amortization period is right for you. If cash flow is tight, then choose a longer term amortization like 20 or 25 years. If you see your income rising and want to pay off the loan sooner, then take a shorter amortization period. Can you change your payments during the loan term to reflect a shorter amortization? Again, try to guesstimate your cash flow and how quickly you want to pay off the mortgage loan. And ask about the possibility to change the amortization back to a longer term if need be due to cash flow.

5. Secondary financing: Assuming you have an existing first mortgage, check the fine print to see if you are prohibited from taking out a second mortgage without the consent of the first mortgage holder. You may need to put on a second mortgage to support a line of credit for your business, as additional security for a chattel loan, a home improvement loan, an investment loan or for some other purpose where it is necessary to put up real estate as security for the loan. Ideally, you want the first mortgage holder to have no say as to who or how you find secondary financing so long as the first mortgage remains up to date and in good standing.

Finding the best interest rate is always a determining factor but not the only factor in selecting the loan right for you and your particular circumstances!!

By Paul Bregman

To contact Paul, e-mail pbregman@perlaw.ca or call (613) 566-2812