Fixed Vs. Variable Mortgages - Where do we Begin?
Fixed Vs. Variable Mortgages - Where do we Begin?
Wondering about where to begin? I will guide you every step of the way!
Working with a Mortgage Agent will allow you to browse several mortgage options instead of being limited to a select few products offered by one bank. This is helpful as the rules of approval shift. With the introduction of the stress test, the approval process can be challenging. Working with a Mortgage Agent opens up the element of choice, and we all know it is always better to have choices.
Variable Vs. Fixed-Rate
What’s the difference? Let’s break it down!
A variable rate moves with the prime rate and therefore the payment each month will slightly vary. As interest rates decrease, your payment will also decrease and vice versa. Historically, variable rates tend to be the better rate over the life of a mortgage, provided you can ride the wave. The term of a variable rate is always 5 years. It is worth noting that if interest rates begin to rise you can always lock your mortgage into a fixed rate to avoid further increases.
What are fixed mortgages all about? If you prefer to know exactly what your payment will be each month for the term of your mortgage, a fixed interest rate is the way to go. Fixed mortgages are available from a 1 to a 10-year term and the payment remains constant for that term. The best part - if interest rates rise you will not be affected by the increases.
Both rates can be amortized up to 30 years depending on the lender. The amortization will be chosen based on your financial needs.
Breaking a Fixed Vs. Variable Mortgage
Life happens and sometimes you need to break a mortgage commitment. If it happens, no problem, there are solutions!
If you break a variable mortgage, the penalty is three months’ interest. If you break a fixed mortgage the payment can be the interest differential which is the interest lost on the remainder of the mortgage. To avoid penalties, there are options to blend or port your mortgage if you are purchasing a new property. Working with a Mortgage Agent, you will be aware of all the options before you make your final decision. It can be beneficial to break the terms if you are doing it for financial gain in another area of your life or it might be worth it to wait out the term so you forgo the penalty. The best decision for you will be determined based on your financial situation and goals.
Premium on Rental Properties
If you have an investment property, there is a premium on the mortgage but it is minimal compared to the rental income you are collecting from your tenant. The premium amount will vary by lender, usually coming in at less than 1%. Real Estate investing is a great opportunity to diversify your portfolio and the premium is generally well worth it for the long-term gain.
Phew - we made it through!
This topic can be confusing as the rules often change and each lender operates slightly differently. Let’s tackle this together and make sure you have the best option for your situation. I make mortgages fun, I promise.