Mortgages: which one is right for you?

Eleven per cent of all online mortgage applications in Quebec come from Dollard-des-Ormeaux, ranking the town fourth highest in the province. Pierrefonds and Pointe-Claire are close behind at sixth and eighth place, respectively.

About half of all homeowners opt for variable rate mortgages, and half for five year fixed rates, said Warren Ross, a mortgage broker with Mortgage Intelligence serving the West Island.

Given the current economic climate, fixed rates are the best option because interest rates are so low, said Lily Lachance, a mortgage broker specializing in the West Island with Hypothecaire.

Though variable rates, susceptible to rate fluctuation--and payment--throughout the life of the loan, have been less expensive than fixed rates throughout history, fixed rates are currently the lowest ever, said Lachance.

This year, the best prime rate available is 3.3 per cent and the best fixed rate is 3.75 per cent--a difference of .45 per cent. Because the difference between a fixed and variable rate is much smaller this year than it was last year, variable rates have become less interesting, said Lachance.

But while interest rates on a five year fixed rate mortgage remain consistent at around 4 per cent, according to Robert McLister at Canadian Mortgage Trends, it's not necessarily the way to go. "If you have a lot of assets and equity, low debts, and are fully accepting of and can handle possible risks of increased mortgage payments by 30 to 35 per cent, variable rates may still be advisable," said Robert McLister at Canadian Mortgage Trends. "It all comes down to your personal balance sheet, assets and liabilities."

Homeowners often choose a fixed rate mortgage because first time home buyers with very little down payment, on a very tight budget, want to have one less thing to worry about, said Ross. "For the peace of mind of wanting to have one less thing to worry about [monthly fluctuations in interest rates] they're willing to pay more on a fixed rate than a variable rate," said Ross.

Still, peace of mind or not, fixed rates offer the least risk in a volatile economic climate. "If you buy into the economic forecast suggesting rates are going back up, then fixed rates are the least risk right now," said McLister.

For either option the first thing to consider is what you can afford, keeping in mind hidden taxes like notary fees and welcome taxes, in order to know what kind of monthly payments you'll be capable of making, said Ross.

That's where amortization, or how long it will take to pay off the entire mortgage, comes in. Because unexpected illness, job loss, or accidents could cause unexpected expenses, if you can set up a longer amortization period you're allowing yourself more of a safety net. "At the point when people apply for a mortgage, they are usually feeling confident about their income and their future," said Ross. "But that may not always be the case, so longer amortization acts almost like insurance by allowing for the right to make lower payments," said Ross, who noted that you can always increase monthly payments of make lump sum payments between 10 and 20 per cent of your mortgage.