The age-old debate: The security of fixed rate versus the potential savings by having a variable rate that adjusts with the Bank of Canada prime rate.
A fixed-rate mortgage is when your interest rate and your mortgage payment will remain the same throughout your mortgage term.
A variable-rate mortgage is when mortgage payment will stay the same throughout your mortgage term, but the interest rate can go up and down along with the prime interest rate.
Fixed mortgage advantages: you’ll always know when you’ll pay-off your mortgage, easier to understand than a variable-rate mortgage and you’ll have confidence knowing what to budget for mortgage payments.
Fixed mortgage disadvantages:The initial interest rate is often higher than a variable-rate mortgage, you’re locked into your interest rate for your entire mortgage term and if you break your mortgage for any reason, penalties will likely be greater than a variable-rate mortgage.
Variable mortgage advantages: The initial interest rate is often lower than a fixed-rate mortgage, an initial lower payment may help you qualify for a larger loan, if the prime rate falls and your interest rate falls accordingly, more of your payments will go towards the principal and you can convert to a fixed-rate mortgage at any time.
Variable mortgage disadvantage: If the prime rate rises and your interest rate goes up accordingly, less of your payments will go towards the principal which could make the amortization period longer.
Just like no two people are exactly alike, the same goes for mortgages. Picking the right mortgage is beneficial to your long-term planning and it can help you pay your mortgage down faster.
Everyone’s circumstances and goals are different and our role in this process is to understand your needs and wants before helping you choose a mortgage term. Once we’ve established what best fits your financial plan, I can then present you with a variety of options that will keep you on track.
The combination of a well thought out plan, with a mortgage that offers pre-payment flexibility and a term that aligns with your life, is a recipe for smart home ownership.
The short answer is yes, but not always.
You may be able to negotiate on the interest rate a bit. It pays to compare rates from various lenders. If you find a lower rate elsewhere, by all means ask your lender if they can match it or do even better.
Often, you’ll have the most luck negotiating if you have an attractive mortgage application. That includes a good down payment and credit history, stable income and low debt service ratio. If you already have other products with the lender (i.e. investments, insurance or even a credit card) you may also get a better rate.