As a first-time homebuyer, you can confront problems in choosing the right mortgage. Moreover, getting a mortgage can also affect your life for the next 25 years. Thus, it is important for mortgage seekers to make the right choice regarding a mortgage for buying a home. You should also choose yor mortgage options wisely as a first-time homebuyer in Oakville. Nonetheless, many mortgage seekers either end up choosing a repayment or an interest-only mortgage. So: Which is your best option in Oakville for a mortgage: Interest-only or repayment? Let’s discuss the two one by one to find an answer to this question.
Repayment Mortgage and an Interest-Only Mortgage
- Repayment Mortgage: You will need to pay both the interest and the principal if you choose a repayment mortgage. In the first few years, the majority of your monthly payments throughout years will be going on interest with a thin amount of payments covering your principal. However, you can pay a large sum of money with time with a repayment mortgage. It will also aid you in paying more capital and lessening your interest with passing years. Consequently, you can own a house completely with the end of the mortgage term once you completely pay your principal and interest.
- Interest-Only Mortgage: You will have to pay the mortgage interest every month with an interest-only mortgage. However, it will keep your principal payment intact. You will pay less with an interest-only mortgage than on a repayment mortgage. Additionally, you will need to pay your capital off in a lump sum at the end of the term of your interest-only mortgage.
Are Repayment Mortgages Better?
Repayment mortgages are the safe option that mortgage seekers have to buy a home in Oakville. They are also the most popular type of mortgage. When you pay off your repayment mortgage, you will build home equity that will unlikely convert into a negative equity. Besides, the prices of houses have increased with time in Oakville and still going up. Hence, buying a home in Oakville with a repayment mortgage will benefit you in the long run. You can also modify the fixed term length of the mortgage at a forthcoming date to 30 or 35 years. You don’t get the flexibility to pay your monthly payments with a repayment mortgage, it is yet better. A repayment mortgage is your best option in Oakville for a mortgage, but it has its drawbacks, such as:
- Extension of the fixed term.
- Making a further lump sum payment can lead the lender to charge a fee to sort out changes.
Interest-Only Mortgages Are a Bad Choice
Many Canadians agree interest-only mortgages are a bad choice. Besides, they are more vulnerable to market forces than repayment mortgages. Interest-only mortgages can either go in or against the favour of mortgage borrowers. It will depend on the increase or decrease in the value of the property with time. For example, if the house price goes up with time and you pay your principal at the end of your term with a substantial increase in your house price, it can benefit you. Nevertheless, interest-only mortgages are risky as there is no guarantee of what will happen in the end. Moreover, interest-only mortgages are arduous to pay because you have to pay a huge payment in the end. Here are the most noticeable cons of interest-only mortgages:
- Generally, interest-only mortgages require large down payments. Hence, it’s unlikely for the value of a home to increase in the first 5 to 10 years you want to acquire.
- You may build a little equity in the end if the house values go down when you completely pay your mortgage.
- Interest-only mortgages are always risky and demand higher interest rates often. For the same reason, they are less marketable today; hence Canadians consider them a bad choice.
- Often, mortgage borrowers need to pay variable interest with interest-only mortgages. Hence, they are a headache in case the rates go up over time.