When you apply for a mortgage loan, there are different interest rates that you can choose from. One is a Variable Rate mortgage, and the other is a Fixed-rate mortgage. Private mortgages Canada will negotiate with you regarding your interest rate.
Even so, we will focus on one interest rate, the Fixed Rate Mortgage.
What is a fixed-rate mortgage?
This type of interest rate will remain the same throughout your loan term regardless of fluctuation in the market. “Fixed rate is generally tied to the 5-year government of Canada bond deal.” Says Dr. Sherry Cooper. The 5-year bond yield represents the return an investor gets by holding 5-year Canadian debt to maturity. The Government of Canada issues a bond with a coupon. The market then dictates what those bonds are worth, thereby setting the yield in an open market trading.
Should you choose a Fixed rate mortgage?
Choosing a fixed rate has its own pros and cons. I’ll break it down to help you decide if a fixed rate is the right choice for you.
Benefits of Fixed rate mortgage:
- Predictability
- because of the constant interest rate on your loan, you already know the exact amount of what you are paying monthly.
- Protection from the interest rate.
- when there is a hike in interest rate, your low-interest rate is secured, and your payments remain unchanged.
- Budgeting.
- It’s easier to budget your income when you are sure about your monthly payment. You can make slight changes in other factors, but you can rest assured that the payment towards the mortgage will stay the same.
Drawbacks when you choose a Fixed rate:
- Miss out on interest rate fall.
- of course, when you are protected from an interest rate hike, you’ll also have to miss out on the drop.
- Higher interest rate.
- fixed rates tend to have higher interest rates compared to Variable rates.
- Early repayment charges.
- unlike on a Variable rate, you can give a lump sum of money to speed up your repayments. However, at a Fixed rate, you can, but the charge is costly. They will charge you until they drain your bank account.
Choosing the type of rate for your mortgage can be crucial. Of course, that is for your mortgage, and buying a home might be the biggest purchase you’ll make in your life. So choosing the correct mortgage rate for you is essential. And choosing your mortgage rate is determined by your circumstances. You can find the best private mortgage lenders in Ontario here. And we’ll help you decide and give you the lowest rate possible.
How Fixed-rate mortgage works?
The actual amount of interest is based on how long the loan is amortized. The longer the term, the more you pay for the interest. For instance, an individual with a 15-year amortization period will pay less interest than an individual with a 30-year amortization period. Even tho they have the same mortgage loan amount. Individuals pay more towards the interest in the initial stages of repayment. Later on, their payments go more into the principal.
Risks for the lender and borrower are always there. When the interest rate rises, it benefits the borrower because their interest rate will remain the same. It will not fluctuate with the market value. On the other hand, borrowers are at high risk because they will not earn as much. After all, your interest rate remains the same.
It is essential to study your loan’s terms and conditions. There is a particular circumstance that your lender will change your fixed rate. In any case, your lender typically has to notify you in advance if there will be changes in your interest rate.
Is Fixed Rate the right choice for you?
Choosing between a Fixed rate and a Variable rate may come down to your comfort level with risks. If you want stability on your monthly payments, you can choose the Fixed rate. If you are okay with the unpredictable changes in interest rate over your mortgage term, then the Variable rate might be the one for you.
Take your time in deciding which one is for you. We are talking here about how you will save your hard-earned money. Deciding which one suits you best can save you thousands of money. You will either lose or save money with your choices, so be careful in choosing and do not rush yourself into making decisions like this.
In conclusion:
Private mortgage lenders in Ontario are a big help when you plan to apply for a mortgage. It is less hassle, and you will have smooth transactions with lenders. We have the knowledge and experience to help you decide on your mortgage.
When applying for a mortgage, read and familiarize yourself with all the documents you are signing. Being responsible for the documents that need to be signed. It is to avoid any troubles in the future. If you do not think about everything thoroughly before deciding, it can be a real mess in the future. Chances of losing your hard-earned money or a decrease in your credit score can occur, so you need to think everything through.
