So you’ve finally found the house of your dreams and can’t wait to call it home. Your finances are in good shape and you want to get pre-approved for a mortgage. You know buying a house is usually a long-term commitment so you want to choose the right mortgage and interest rates. In finance, interest represents a fee that you pay to your lender for borrowing money from them to buy your house.
When you are looking for the right mortgage for you or your family, there are a few things you need to consider. Two of which are your mortgage term and interest rate. Your mortgage term is the length of time your mortgage will be in effect. This can range from 2 to 5 years before its renewal date. Your interest rate is the fee (represented as a percentage) you pay your lender for borrowing their money and higher interest rates mean higher monthly mortgage payments. Mortgage terms can be renewed and you renegotiate your mortgage rates each time your mortgage renews.
The interest rate your lender offers you can be affected by the length of your mortgage term, the type of house you choose, your credit history, employment type, and other deciding factors.
When you apply for a mortgage, your lender typically will offer you fixed or variable interest rates. Depending on what your financial goals are, how long you plan to live in the house or what mortgage options you are looking for, a fixed rate might make more sense than a variable rate or vice versa.
What you need to know about fixed interest rates:
Fixed mortgage interest rates stay the same the entire term. This means that you will pay the same amount every month for the length of your mortgage term. Fixed rates are also usually higher than variable interest rates depending on what the current prime mortgage rate it. Choosing a fixed-rate mortgage might be ideal if you want to avoid possible interest rate increases during your term. These interest rates are also very competitive so you can look around at different lenders for the best rates in the market.
The pros of a fixed mortgage rate:
- Can easily be budgeted
- It will not change if lender’s lending rates go up and down
- Ideal if you value peace of mind
The cons of a fixed mortgage rate:
- It may not be worth it if the difference between fixed and variable rates are high
- You may be paying extra for the stability
- You risk missing out on a price drop
What you need to know about variable interest rates:
Variable interest rates can increase or decrease monthly during your term. Variable interest rates are usually lower than fixed interest rates but fluctuate based on the prime rate. Because this interest varies with changes in the market, this option is ideal if you want to save money when interest rates go down. You’ll want to watch the fluctuation closely though so that you can lock into a fixed rate instead of the variable mortgage rate starts to skyrocket.
The pros of a variable mortgage rate:
- Proven to be less expensive over time in the right market
- You will pay less if the interest rate drops
The cons of a variable mortgage rate:
- Future price increases are uncertain
- The uncertainty may negatively affect your finances
One of the reasons it is best to seek advice from a mortgage broker whether you are a first-time homebuyer or a seasoned real estate investor is penalty fees. Your lender may charge you a fee whenever there is a breach outlined in your contract and if you swap from one rate to the other that could mean paying a penalty. Penalties may apply if you pay more than the allowed additional amount off on your mortgage, break your mortgage contract to renew or refinance your mortgage, or transferring your mortgage to another lender before the end of your term. Mortgage penalties are calculated differently in fixed rates or variable rates which is why it’s important to consult an experienced mortgage broker before signing off on any changes. A variable rate mortgage penalty is typically equal to 3 months worth of interest on your current mortgage load. For fixed-rate mortgages, the penalty fees are based on an interest rate differential (also known as the IRD). The IRD is a complicated calculation using the difference between your mortgage rate and current interest rate. You will want a mortgage broker to make these calculations for you accurately before deciding if the benefit outweighs the penalty.
How can I help you get the best rates as your mortgage broker?
With my 12 years of experience and designations as a financial advisor and a mortgage broker, I can show you all of your options, and how they compare to help you make the best financial decision based on your unique situation. To quickly compare hundreds of different lenders to find the best interest rate and mortgage options available to you. Work with me, Darren Robinson. Not only can I help you get approved but I can also provide ways for you to improve your application so you can qualify for a lower mortgage rate.
To get pre-approved for the mortgage you need, click here to start your mortgage application online or you can set up a virtual meeting with me by giving me a call at 705-315-0516 or clicking here to book online now. Together we’ll make a plan so you’ll be well on your way to becoming an official homeowner knowing you got the best rate available to you.