Applying for a mortgage can be a big decision. There are many factors to consider, such as the interest rate, the term length, etc. One of the most important choices you’ll face is whether to get a fixed-rate mortgage, a variable mortgage, or a hybrid mortgage.

What is a fixed mortgage?

A fixed mortgage is one where the interest rate stays the same throughout. This makes it easy for homebuyers to budget their mortgage payments as the amount of interest they pay each month doesn’t change. It also protects the borrower from fluctuating interest rates, particularly when they increase. However, one of the drawbacks to a fixed mortgage is that the rate is higher than with variable mortgages.

What is a variable mortgage?

Variable mortgages have rates that fluctuate depending on the prime rate set by the lender. While this means your monthly mortgage payments will likely change throughout the life of the loan, most lenders will offer a lower interest rate for a variable mortgage. It’s best to budget for higher monthly payments if the interest increases. That way, you won’t be left short when it’s time to pay your mortgage.

What is a hybrid mortgage?

Lenders also offer a hybrid mortgage, which is a combination of fixed and variable. In a hybrid mortgage, some of the loan is set at a fixed-rate, and the rest is variable. These mortgages can also come with different terms for each portion.

For example, the fixed-rate part of the loan may be a three-year term at the beginning of the mortgage, and the variable amount will be a two-year term towards the end. The goal for a hybrid mortgage is to offer you some level of protection should interest rates increase. If rates do rise and you have a hybrid mortgage, you won’t pay as much interest as if the entire mortgage were variable.

How to Pick the Best Rate for You

There is no one-size-fits-all when deciding on the type of mortgage you want. It depends on what you are comfortable with and what the market is doing. If rates are quite low, it might be worth going for a fixed rate, which allows you to lock in a low rate. However, if rates are high and expected to drop, going for a variable mortgage would allow you to benefit when rates do fall. For homebuyers who are not sure what direction the market is heading, a discussion with a mortgage broker can help you find the best rates.

If you are interested in learning more about mortgage options in Ontario, call Northwood Mortgage at 888-492-3690 or contact us here.