One of the most important decisions a home buyer makes is which is the best mortgage option. We recommend getting an initial assessment discussion with a trusted mortgage broker to “diagnose” your situation and future plans. Not all mortgage brokers are equal because not all situations are not the same.
It’s a decision that will have long-term consequences for a homeowner, and it might mean thousands of dollars in interest savings.
As the consequences of the “Omicron” spreads across Canada and out, we see changes in the economy. While fixed rates are still very low and a great option for many, the answer for the majority of people may still be variable.
In 2022, should you choose a variable or fixed-rate mortgage? Which is the best option for you? Let’s find the answer.
How Does A Fixed-Rate Mortgage Work?
The interest rate and payment on a fixed-rate mortgage will remain the same throughout the length of the loan.
How Does A Variable-Rate Mortgage Work?
With a variable-rate mortgage, your monthly payment will remain the same during the length of the loan, but the interest rate will fluctuate with the prime rate.
Comparing Fixed-Rate And Variable-Rate Mortgages
Fixed-rate mortgage
Benefits
- Because interest rates remain constant, you’ll always know when your mortgage will be paid off
- A fixed-rate mortgage is easier to comprehend than a variable-rate mortgage.
- You’ll feel more at ease knowing how much to budget for your mortgage payments.
Concerns
- A fixed-rate mortgage has a greater beginning interest rate than a variable-rate mortgage.
- Your interest rate is set for the duration of your mortgage.
- If you default on your mortgage for whatever reason, the penalties will almost certainly be higher than if you had a variable-rate mortgage.
Variable-Rate Mortgage
Benefits
- A variable-rate mortgage has a lower beginning interest rate than a fixed-rate mortgage.
- A lower first payment could help you qualify for a bigger loan.
- If the prime rate drops, so do your interest rate, more of your payments will go toward the principal.
- You can change to a fixed-rate mortgage at any time
Concerns
If the prime rate rises and your interest rate rises in tandem, less of your payments will be applied to the principal, potentially lengthening the amortization period.
To sum it up:
Fixed-Rate:
- Your rate is locked in for a set length of time known as the term (usually 5 years).
- The interest rate is usually a little higher, but it ensures a stable and regular mortgage payment for years to come.
- If you default on your mortgage, you may be subject to a higher penalty known as an Interest Rate Differential Penalty.
- It is impossible to convert a fixed-rate mortgage to a variable rate without defaulting on the loan.
Variable Rate:
- The rate floats or changes over time as the Bank of Canada makes decisions.
- The rate is calculated by subtracting a discount from the Prime Rate (ex. Prime minus .50 percent ).
- The variable rate is usually lower than the fixed-rate, but it might float higher for short periods of time.
- The penalty for defaulting on a mortgage is usually much lower.
- Without breaking the mortgage, you can lock the variable rate into a fixed rate at any time.
Is It Better To Have A Variable-Rate Mortgage Or A Fixed-Rate Mortgage?
If the financial risk of a variable-rate mortgage doesn’t bother you, a variable-rate mortgage may be a preferable option in a low-interest-rate environment because the rate is likely to be lower than a fixed-rate mortgage, which can save you a lot of money.
A fixed-rate mortgage, on the other hand, is the best option if you want to know that your mortgage payment will remain the same regardless of whether interest rates climb or fall.
Conclusion
When you look for a company for a mortgaged house for sale in Port Moody, Ultimate Solution LLCcan help. We’re not going to ask for any repairs or cleaning, and we’re not going to charge any realtor costs. You can sell your house as-is for a fair market cash price when you work with us. We’ll also be pleased to answer any questions you have about fixed or variable mortgage rates.
So click here, fill out the form, and one of our home-buying experts will call you.
Call (778) 744-4277 to make an appointment.