Tips on choosing the best mortgage for you

Variable rate or fixed rate? Long term or short term? Choosing the right mortgage solution should be based on your personal goals and level of risk tolerance. Ensure that you're comfortable with the mortgage solution you choose based on your present financial circumstance, and regardless of which direction you believe that interest rates may be headed.

Where do I start?

To make sure you choose the right mortgage, you first need to examine your personal goals and determine which of the following you may require:

. Additional funds for renovations or unexpected expenses

. Access to ongoing financing

. Flexibility to pay off your mortgage sooner

. Funds for a down payment

What is "risk", and how do I determine my level of risk?

"Risk" is your ability to tolerate/manage interest rate fluctuations within your own comfort zone. To determine your level of risk tolerance, you should consider the following:

. How comfortable are you with rate fluctuations?

. Would you prefer the security and peace of mind knowing that your mortgage payments are set for a fixed term?

. Could you manage higher mortgage payments should interest rates rise?

. How flexible is your cash flow?

What role do interest rates play in choosing the right mortgage?

Let your short/long term goals, including your tolerance for interest rate risks, guide you in the most suitable direction. This concept will help you determine whether you choose between a short or longer term, fixed or variable rate mortgage, or a combination of both.

Remember, there are also multiple mortgage options available that will allow you to take advantage of potentially lower rates via a variable rate solution and still you give the security of a cap rate benefit.

Types of mortgages:

Closed fixed-rate mortgage - with this type of mortgage, your interest rate is fixed for the duration of the term - usually five years, but it can range up to ten. If you want to renegotiate the interest rate, or pay off the balance prior to the end of the term, you typically have to pay a fee to break the mortgage contract.

Open mortgage - with an open mortgage, you can pay down or pay off the mortgage at any time without incurring a penalty. They are usually available for short terms only - typically, six months or one year. However, the added flexibility translates into a higher quoted rate than a comparable closed mortgage.

Variable-rate mortgage - with this type of mortgage, the interest rate you pay fluctuates with the prime lending rate. In some cases, your mortgage payment does not change for the term of the mortgage. You pay a fixed amount, but more of the payment goes to reduce the principal when interest rates fall, and less is directed to the principal when the prime rate rises. Other variable rate mortgages have floating payments that move with the interest rate.

Scotiabank wants to help Canadians find the money and become financially better off by finding relevant, practical and insightful solutions to meet their needs for borrowing, saving and investing. For more tools, tips and advice on how to find the money visit

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