JUNE BLOG: FIXED OR VARIABLE RATE MORTGAGE?
Happy Sunday Readers!
I've never posted on a weekend before but here we are, today I will quickly discuss the differences between a fixed and variable mortgage and how you can stay informed on the best option for you!
Feel free to contact me through the contact link on the top right corner for more information and some resources.
Differences:
With a fixed-rate mortgage, you'll know with absolute certainty what your rate and payment will be each month for the term of your mortgage, offering you stability and peace of mind. Since fixed-rate mortgages are not affected by fluctuating interest rates, you can "set it and forget it." Typically preferred by those on a tight budget, first-time buyers, or those who haven't owned a home for a long time.
A variable mortgage has an interest rate that will move in conjunction with your lender's Prime rate, which in turn tracks the Bank of Canada's overnight rate and will be expressed as "prime minus x percent." If the Bank of Canada raises or lowers its rate, then you'll likely see that reflected in your mortgage payment. Since it can be difficult to predict what kind of rate ups and downs are ahead, a variable-rate mortgage is best suited to people who have a flexible budget and can tolerate slightly more risk.
Things to consider:
- It's important to consider the many "what if" scenarios that could happen over the term of your mortgage.
- Most variables allow you to exercise an option to "lock in" a fixed rate with no penalties when the time is right for you to lock into a fixed-rate mortgage.
- You can set up your payments at what they would be if you took the higher fixed rate, which helps you pay down your mortgage faster, and creates a financial buffer for you if rates rise later.
- With inflation concerns on the horizon, the Bank of Canada may raise the overnight rate sooner than expected, which will affect those in variable mortgages.
- Get advice; the best choice depends on your situation.
- If you are looking to purchase, renew, or refinance to get today's low rates or for debt consolidation, get in touch with a mortgage company to discuss your situation and determine the best option for you.