Fixed Rate vs. Variable Rate Mortgages
When it comes to mortgages, there are two options to choose from; fixed or variable. While it can seem simple, there are a few things to keep in mind when deciding which mortgage option is best for you.
Fixed-Rate
The name pretty much says it all; you will pay a specific amount every month for the number of years agreed upon until the amount you borrowed is paid off in full. This monthly payment is calculated through your bank who will quote you an annual percentage rate as well as a term. Once those details are finalized and agreed upon, you will then pay that specified amount every single month for the course of the mortgage. If, for example, you had agreed upon a mortgage course spanning 25 years, then by the end of that term you will have paid off the principal amount you borrowed along with the interest you owe the bank and any other expenses added to the total. These sums would be added together and divided into equal monthly payments, thus creating a fixed rate you would be paying monthly.
If you value the idea of consistency and are uncomfortable with uncertainty, a fixed mortgage rate would be a better option for you because it will provide you with a comfortable financial plan that will not change from month to month.
Variable Rate
Variable means there is the possibility of change. This option is not as simple as a fixed rate because the interest rates change regularly based on the changes of the prime or overnight rate, the government set rate that determines if interest rates go up or down. Many people would say that a variable option is risky because there are no guarantees, while others argue that it saves you money in the long run.
Variable-rate mortgages can be done in two ways, one that includes a fixed payment plan and the other that allows fluctuating payments. If you decide to go with the fluctuating option, your monthly payments can be very different each month which is something you should keep in mind. If you decide to go with the fixed payment plan, the amount you pay towards the principal versus the amount you pay towards the interest will all depend on what the interest rate happens to be for that month.
If you feel comfortable with change and don’t require an exact monthly financial plan, a variable rate could be the option for you.
No matter which mortgage plan you are leaning towards, CYR Funding can help. As one of the best mortgage brokers in Ontario, they can go over the differences between a fixed rate and a variable rate and help you decide on the mortgage that is best for you. They specialize in commercial mortgages as well as mortgage refinancing. If you are looking for a broker you can trust, give CYR Funding a call today!
