One of the most common questions people have when looking at a mortgage is whether they should go with a fixed rate, or a variable rate. The answer, really, is it depends which one is better for you.
Are Variable or Fixed Mortgage Rates right for you? Fixed mortgage interest rates are interest rates that stay fixed for the entire term length of the mortgage. This means equal payments every month and any fluctuations in the interest rate will not affect you.
Variable mortgage rates change over time. The variable mortgage interest rate adjusts with the prime rate. The prime interest rate may go up or down and this may affect your monthly mortgage payments. When the prime rate goes up, more of your mortgage payment will go to interest and when the prime rate goes down, more of your mortgage payment will go to principal. In the event that the variable interest rate rises past what your mortgage payment would cover in just interest payments, your payment can adjust upward or your amortization could be extended. The Interest rate is affected by the Canadian economy and monetary policies, such as the prime rate, are set by the Bank of Canada.
Fixed interest rates are usually recommended for first time home buyers so that they can manage their household budgets easier and without worry of possible payment increases – but that doesn’t necessarily mean it’s the right choice. Commonly, first-time homebuyers are the ones who are most open to weighing their options, working out the numbers, and making an informed decision. Shoreline Mortgages is dedicated to helping you have the information and tools to make those informed decisions.
In short? Variable and Is the future an indication of the past?Fixed Mortgage Interest Rate Comparison:
Variable mortgage has lower interest rate than fixed rate mortgage, but the rate may go up.
Fixed rate mortgage gives you 100% certainty that payments will not change for entire mortgage term length.
Studies have shown that between 1950 to 2007, only one in seven Canadians chose a variable rate mortgage. Those who did saved an average $20,630 on interest payments per every $100,000 over 15 year period, due to lower interest rates offered on variable mortgages.
Whether the variable rate mortgage or fixed rate mortgage turns out better depends on what happens to interest rates in the future, which no one knows. That said, good economic forecasts and good advice can help you determine your risk tolerance, and help you make that informed decision. Mortgage Alliance – Shoreline Mortgages is glad to help you do that.