In terms of interest rates, a seemingly mere fraction of a percent can impact your savings over the life of your mortgage loan. For this reason, it’s pivotal to be conscious that your choices will ultimately affect your interest rate. Being able to govern interest rates is not feasible, so being informed is fundamental in determining what’s typically the benchmark as far as the interest percent. Preparing and comparing will conclusively lead you to a choice decision.
As a borrower, the interest is an additional payment on top of the principal amount of your loan. It is an annual percentage rate which is either fixed or variable; ultimately, the choice will have a tremendous impact on your mortgage loan. For that reason, it is imperative to discern the variants of the two classifications of interest rates. This knowledge is vital to your overall comprehension of how interest rates function, consequently granting you leverage to obtain a choice percentage when applying for your mortgage loan.
Fixed interest rates are indicative of stability, which necessarily connotes a higher level of security concerning paying off your mortgage loan. A fixed-rate exemplifies a predetermined payment that does not fluctuate in the amount charged on a liability, more specifically, your loan throughout a set period. Still, essentially, the rate is discernibly on the rise. Avoiding an upturn in interest rates at least until the period of mortgage renewal makes it a choice decision for many; this does not maintain that fixed rates are characteristically lower than variable rates. The allure does not fundamentally bank on a more enticing price, but rather the concept of locked expense paid monthly. What most people find compelling about this type of rate is that, of all the mortgage products, they are the safest option available because they are not affected by market fluctuations (up or down). All risks are eradicated.
According to CBC News, approximately 60 percent of the 5.8 million mortgages in Canada are fixed-rate, with a five-year term markedly accessible, but it also discloses that this is wavering. Variable interest rates are actively reclaiming their appeal, which signifies mortgage products will perpetually reflect your unique demands.
Variable interest rates, first and foremost, are synonymous with risk. It will notably fluctuate over time, in connection with current interest rates. They typically start with lower interest rates rather than fixed-rate loans, but the interest rate and payment amounts are susceptible to change over time. Just as with fixed interest rates, a variable interest rate mortgage has steady payments, but fluctuations in interest rates affect how your payment amount applies to your mortgage. In cases of interest rates rising, more of your money administers towards the interest. If the interest rate drops, more of your payment goes toward the principal amount. A rate change in one month also changes the monthly payment due for that month, as well as the total expected interest owed over the life of the loan.
Fundamentally, the choice between either a fixed interest rate or variable interest rate on your loan is not uncomplicated. Yet, it’s pivotal to discern that your mortgage product will be prudent to you. Your income, lifestyle, choices, as well as your endurance for uncertainty or risk, will broadly impact your decision.
Our expert team at Northwood Mortgage™ has many more answers to simple or more intricate mortgage questions, and we look forward to connecting with you. As one of the most venerated brokerages in the GTA, our team exemplifies prize services and choice products to our clients, lenders, and investors alike.