You have decided to purchase a home and looking into mortgage options? One of the first things you need to know is the difference between fixed mortgage rate and variable mortgage rate.
Why it matters? The choice of fixed mortgage rate vs variable mortgage rate will define whether your payment will change over the term of your mortgage and often possible penalty options in case you decide to break your mortgage early, among other things.
Fixed rate mortgage means that the interest rate for your mortgage will not change during the mortgage term. If, for example, you get a 4.89% 3-year fixed rate with 25-year amortization, it means that your rate will remain at 4.89% for the 3 years of the term and your payments will be the same during these 3 years. If you prefer lower risk and don’t want to depend on Bank of Canada rate decisions – this is an option for you.
Variable rate mortgage means that the interest rate of your mortgage can change depending on Prime rate, which in turn is impacted by the interest rate set by the Bank of Canada. It also means that your payment can go up or down. This option does mean more risk, especially if there are indicators that Bank of Canada rate might get increased. But it presents opportunities for you if you believe that rates will go down. Depending on the size of your mortgage and how much the interest fluctuates, the savings can be significant.
Ultimately, the choice is yours and both fixed and variable mortgage rates can be the right choice for different kinds of situation. Proper assessment is very important and only possible after analyzing your individual case, so book time with me today to talk about your mortgage needs.
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