Bank of Montreal (BMO) – a big bank in Canada for all my non-Canadian readers – is hosting a cool contest asking people to share their personal home hunting stories. So, that got me thinking… I’ve now purchased and sold a home, and last year, bought our new home… so surely I have a few tips my fine reading friends might like to hear…

The obvious ones, like… I don’t know… finding something you (and if there is a partner) your partner LIKE should go without saying… but in case, I just said it!! Another is choosing the right location. A HUGE house in a neighbourhood you don’t know anything about, near no one you know, in a city you can’t even spell might lead to a regrettable decision later, so really spend some time thinking and loving the future neighbourhood your little home calls its own!

But, lets get down to business… this is a financial/money/economy based blog (What, wait?!?! Yes dear reader, you are reading a finance blog… tricked you!! See, you can care about the economy… or at the very least how you, Jessica Simpson and interest rates all have something in common… hint… $$!)… so lets talk about money and how it relates to buying your dream home!!

A MUCHO important step (I don’t know Spanish, so that’s all you’re getting… wait, is that Spanish?) is choosing a LENDER… or how you’re going to finance your home. There are pretty much two routes to go on this one, other than paying all cash… ah, wouldn’t that be fun! For those of us in reality, you’re either going with a major bank, or working with a mortgage broker that in turns sets you up with a major bank, or a smaller subsidiary of a big bank, or finally an independent lender. Choosing the lender, and the term of the mortgage is a really important step. You love the house… check. You know its not falling down, blowing over, or going to explode… check… You and the seller have agreed on a price… CHECK! Lastly… how the HECK are you going to pay for it… the “BIG CHEQUE” if you will… sort of a big part, no?

So understand, ask a million questions, and really understand your mortgage, wait, I already said “understand”… oh yeah, that’s because folks, its so dang important!!

Basic questions you should ask, or in the case you already own that home, questions you should KNOW the answers to. Here are my big 3:

How Well Do You Know Your Mortgage?

1. Fixed or Variable Rate. Fixed means you have one rate for the first set number of years. Variable, on the other hand moves (or floats) with the Bank of Canada rate (prime) – moreover, a rate set by your lender. This rate can change at anytime, and changes without your authorization. If you’ve ever applied for a mortgage you will see that your variable option is lower than the fixed rate. That’s the whole risk/reward.

2. Amortization Schedule. Amortization just means how many years this sucker, I mean, mortgage will be hanging over your head, and what does the payment schedule/plan look like. Back a few years ago, banks were giving out 40 year mortgages. No can’t do anymore. Typically people choose a mortgage in the range of 25 to 35 years, paying once a month (monthly), twice a month (bi-monthly), or every other week (bi-weekly). As with any debt, the longer the period, the more interest you end up paying. Understand that the longer your mortgage term, in the beginning almost your ENTIRE payment is going to just paying interest. Yes, super gross.

3. Open or Closed. Now here is one that people don’t often know or ask about. The big difference between open and closed mortgages is the freedom to pay off that mortgage with or without penalties. So, lets say you get a 30 year, closed, fixed rate mortgage. We know 30 years is the ENTIRE time period it will take to pay off your mortgage, if you don’t make any extra payments, and that no major changes to the mortgage take place. But what does that “closed” part mean? Well, closed means that you are making a promise to the bank that you will remain in that EXACT mortgage for a set period of time (typically 3, 4 or 5 years, then things will be renegotiated). Now, why would you do that? Well, giving the bank that promise, they say, ok, we’ll knock off a couple of points and give you a lower rate, because to them, that’s a guaranteed set of payments coming in each month. They then turn around and use that money for other things (no need to get into a lesson on how banks make money… another time, phew, right?). Essentially you are making a commitment with the bank to make NO changes to your housing situation for that set period. So what does “open” mean?
Well, open refers to the option that you can get out of that mortgage before that set time period (3, 4 or 5 years). Why would someone choose that option, an option that is more expensive than the “closed” option? Well, people that know they are going to move out of that house in a time shorter than those 3, 4 or 5 years, or people that plan to flip the property. Or those that aren’t sure, and don’t want to get dinged on an opportunity to move, but fear being locked into their mortgage. Or those that plan on paying off more of their mortgage that is “allowed” or better yet, paying off the whole kit and kaboodle early (yah, I just said that! I dare you to not say that later today!!) And just for info’s sake. If you choose a closed, fixed mortgage, and lets say it was for a 5 year period, at around 5% on a $400,000 mortgage… your break fee – the fee to get out of that closed mortgage – ends up being around $18-20,000. So, it’s a BIG fee that you need to consider.

That’s my advice to you today… if others have some helpful tips – we’re all happy to hear them!! There will be more articles upcoming on the topic of “your search for your perfect home… “ so if you have topics you’d like to discuss, please drop me an email!

Lastly, as already mentioned, BMO is having a cool contest The Great House Hunter Contest for BMO SmartSteps for Homeowners. The grand prize is 10,000 AIR MILES® reward miles – holy air miles! – and the first 250 entries get 100 AIR MILES reward miles simply for sharing their great house hunting story!!

Watch MissFortune.ca for our own little contest… check back soon for more details!!

Thanks lovelies!!

xo MF

PS – About The Great House Hunter Contest for BMO Smartsteps for Homeowners…

There is no purchase requirement to enter into The Great House Hunter Contest for BMO SmartSteps® for Homeowners (the “Contest”). The Contest is open to all legal residents of Canada (excluding Quebec) who (at the time of entry): (i) have reached the age of majority in their province/territory of residence; and (ii) have an AIR MILES®* Collector Card. To enter, send an email to House.Hunter@bmo.com that contains (among other things) a story that discusses your “house hunting” experience and one (1) optional photograph to accompany your story. Prizes: Eight (8) Finalist Prizes (1,500 AIR MILES reward miles each); one (1) Grand Prize (10,000 AIR MILES reward miles); and two hundred and fifty (250) Entry Prizes (100 AIR MILES reward miles). The approximate value of AIR MILES reward miles prize depends on the chosen method of redemption and available reward options at the time of redemption. Odds depend on the number, caliber and timing of eligible entries received. Skill-testing question required to be correctly answered to win. Full rules at: www.bmo.com/greathousehuntercontestrulesandregs