16 Apr Fixed Rate or Variable Rate Mortgage- Which One To Choose?

Planning to apply a mortgage to buy a property in Canada? As a prospective homebuyer, you must be aware of the type of mortgages and rates available in the market to make the right choice. A mortgage broker in Surrey, BC can help you make the right choice by making you understand the ins and outs of the mortgages and the importance of choosing the right rate type.  

There are two main types of rates available, mainly fixed and variable rate that comes with their own advantages and limitations. In this blog, we’ll explore the interest rate options in Canada:

• Fixed Rate Mortgages

A mortgage approved with an interest rate that stays the same or fixed for the duration of the mortgage or loan period is known as a fixed rate mortgage. This implies that you pay the same proportion of interest on the borrowed money whether you are in the first or the last year of your mortgage term. Fixed-rate mortgages are easier to budget for as you already know the interest rate you are going to pay, making them more predictable.

Advantages of fixed rate mortgages include:

1. Financial Stability: It is simpler to project monthly payments you need to pay in coming years in advance with a fixed-rate mortgage.
2. Consistent Rate: The interest rate and monthly payment stay the same throughout the duration of the loan.   
3. Risk Protection: Since interest rate is fixed, it won’t fluctuate with the market, thereby protecting you from future rate increases.

• Variable Rate Mortgages

A variable rate mortgage is a type of loan or funding with an interest rate that fluctuates based on the market state or scenario on a regular basis. It usually starts with an initial term which is usually more than a decade, where the interest rate is a little bit lower than it would be for a fixed rate mortgage. When the loan enters its adjustment period, the rate may be changed in accordance with the current market conditions. This can result in an increase in your rate and a larger monthly mortgage payment. Because of this, variable rate mortgages are considered quite riskier.

Advantages of variable rate mortgages include:

1. Lower Starting Rates: Variable rate mortgages frequently begin with lower interest rates, resulting in lower initial monthly payments and higher purchasing power.
2. Potential Savings: If interest rates fall, the rate adjustment may result in lower monthly payments and long-term savings, though this is not guaranteed.

Which Mortgage Is Best For You?

Whether you are looking for a residential mortgage or need construction loans in Surrey, fixed rate mortgages have been more popular among buyers, particularly those who want to own their property for an extended period of time. Selecting the right mortgage type needs careful analysis of your financial condition and long-term objectives, including risk tolerance and specific circumstances. If you are looking for a reliable mortgage broker in Surrey to help you with fast mortgage approvals, look no other than Satbir Bhullar.