What is a Fixed Rate Mortgage?
Liz Oliver | Financial Advisor | Mount Brydges
Whether you are buying your first home, refinancing or renewing an existing mortgage, sometimes deciding whether to go with a fixed or variable rate mortgage can be confusing. I’d like to share some information that may be helpful when deciding if a fixed rate mortgage is right for you.
First off, what does a fixed rate mortgage even mean?
A fixed rate mortgage is a home loan product that has the same/consistent interest rate for entire length/term of the mortgage. Even if the markets and rates fluctuate your rate will remain the same as the day the mortgage began.
Locking into a fixed rate mortgage offers you the homeowner/borrower stability against any sudden or potential interest rate increases within that locked in term. You can budget accordingly and know that your weekly, bi-weekly or monthly mortgage payment that you set-up at the start will remain the same unless you decide to increase your payment amount.
The most popular fixed rate mortgage tends to be a 5 year fixed term where you lock in to that rate for 5 years, however Mainstreet and most financial providers and banks, offer terms from 6months to 5-10 years in length/duration. Rates offered are different depending on the length of term you pick.
On the flip side, there are a few things to keep in mind about a fixed-rate mortgage.
-They generally have a slightly higher interest rate, making the qualifying criteria a little more difficult.
-In case of an interest rate decrease in the markets, you the borrower will not be able to take advantage of that new lower rate as the mortgage would be locked-in for a certain length of time depending upon the term chosen. Breaking that contract will incur penalties, an unwanted extra cost to the borrower.
Regardless of your preference, it is important to understand and know all the details and fine print of your mortgage. Our goal is to offer our members knowledge and support in their home financing needs. Book a meeting with a Mainstreet advisor today to learn more.