Solution: education, education and more education -be a savvy consumer! Understand the lenders products and the way lenders market so that you can make an informed decision. It may be a mistake to base your decision on rates alone!

Things you need to know at this stage:

Products:

Open or Closed Mortgage?

1. Fully open Mortgage is one that you can pay off at any time, without penalty.
2. An "Open" mortgage can be paid off but with some restrictions- usually three months bonus interest plus the interest differential- which means the difference between the rate shown on your mortgage and the then current market rate if that rate is higher.
3. Open- but it can be paid if you sell the property to a real buyer -and then with penalties similar to an ordinary "open" mortgage.
4. Closed mortgage- where you do not have a right to pay it off early.

Long or Short Mortgage?

The history is that you are better off going short -experience has shown you will pay less.. While experience has shown that going short has proven to be cheaper -it still involves a gamble -don't do it if you haven't the stomach for it or if an increase in what you pay each month will be hard for you to manage.

Discounted rate or cash back?

There is a dollar value that your lender has in their budget to woo you. In other words, your business has a quantifiable value to the lender. All lender promotions can be reduced to a dollar and cents figure. That "pie" can be cut in many ways. It may simply be in the form of a discount (1% off posted rates for terms of more than a year) or it may be in the form of you paying posted rates but receiving up to 3% of the mortgage in cash back. It could be a combination of the two.

Some lenders are creative and find things to throw in to the pot that they feel you need and which they may be able to procure at a lower price than you can. If they throw in something you need and which you may have to or want to buy anyway (like closing costs or a Home Warranty on a resale property) you may perceive the value to be higher than it is in dollar terms to the lender- that of course is their challenge. A good example of this is Aeroplan/Air Miles points -some people are obsessed with these and will do anything to get more of them- those people will probably be attracted to a mortgage that features Air Miles or Aeroplan points.

MY ADVICE TO FIRST TIME BUYERS WITH LITTLE OR NO RRSPS : DON'T BE FOOLED BY GIMMICKS -WHATEVER IS THROWN IN IS SOMETHING YOU WIND UP PAYING FOR SOMEHOW - TAKE THE THREE PERCENT CASHBACK AND PUT IT INTO A GROWTH RRSP. Work with your planner. By doing that you hedge your bets in the long run, if Real Estate values drop,at least you have some growth vehicles.

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