Mortgages can be complicated, and even daunting. If you’re a first-time buyer, it’s best to seek advice or use a broker. Even people who have been through the process find it confusing. You have to consider things like your income, savings, the economy, how much you should borrow, and your credit rating. There, of course, is the whole issue of approval. Will a lender or bank approve your mortgage application? Not least, you need to figure out exactly what kind of mortgage you should get – fixed term mortgage or variable rate.
When it comes to mortgage products, there are two types of mortgages for you to consider: Fixed term mortgage and variable rate mortgage. In this article, we are going to look at the fixed term mortgage. You’ll be able to decide if this product is for you and understand exactly what it is. so that you can learn more about this product, what it is, and if it may be right for you.
A Fixed -Term Mortgage
A fixed rate mortgage means that the interest rate on the mortgage remains fixed, or the same, during the term of the mortgage product. The interest rate that you are offered and agree to at the start of your mortgage remains the same for the lifetime of the product. This is unlike a variable rate mortgage, which means that the interest charged on the amount borrowed can vary. It is tied to interest rate decisions made by the Bank of Canada. When the Bank of Canada increases interest rates, the interest rate on your variable rate mortgage will increase. When interest rates of decrease, the interest on your variable rate mortgage will decrease.
Why are fixed-term mortgages popular?
The current economic times we live in mean that there are many factors impacting mortgage rates. A global slowdown, international disputes about tariffs, political events, and even natural disasters can affect economies and therefore interest rates. Interest rates can increase or decrease suddenly without any forecast or warning.
A fixed-term mortgage is a product that offers borrowers safety from sudden increases in interest rates. This means that you are protected from sudden increases in your monthly budget. As mentioned, your interest rate and monthly payment amount are constant for the term of your mortgage, however long it may be, for example, one, five, ten or 25 years.
You may also decide to opt for a longer repayment fixed term mortgage if your bank is willing to offer you this. It will give you additional security should interest rates increase in future years. Alternatively, if you can afford it, your bank or lender may allow you to pay down your mortgage or pay of the complete amount. However, there is almost always a charge for this – which your lender will detail in your mortgage documents.
To learn more about fixed-rate mortgages, call Northwood Mortgages at 888-495-4825 or contact us here.