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Fixed vs variable mortgages – what’s the difference?

Fixed vs variable mortgages – what’s the difference?

Pile of coins with a little wooden house and alarm clock

Buying a home is an exciting time, but it’s also a big financial step in your life that can be stressful and overwhelming, especially as a first-time homebuyer. One of the first things you must decide as a new homebuyer is choosing what type of mortgage to get. Wait…there are different kinds?! Yes, there are, mostly you’ll pick one of these two types of mortgages: fixed and variable.

What’s the difference? I’m here to explain!

When you choose a fixed-rate mortgage, this means that the interest rate of the mortgage will remain the same until the mortgage comes up for renewal. This type of mortgage is determined by the Government of Canada’s bond yields at the time of purchase. Even if the bond yields change, your mortgage rate will not, which is great if you don’t want any surprises with your monthly mortgage payments. Each month you will know exactly how much of your mortgage payment will go toward your principal for the length of the term and how much will go toward interest as well as how much it will be down to the penny in terms of what you will see be withdrawn from your bank account. If you’re worried about affording your mortgage payments if they increase, even ever so slightly for a short period of time, this would be the best option for you.

A variable-rate mortgage on the other hand means your mortgage interest rate will fluctuate. It is determined by Bank of Canada’s lenders’ prime rates, which are the interest rates on loans that the banks are currently offering to their best customers. When you’re approved for a mortgage, the variable

rate is typically lower than the fixed-rate. It may not be a huge difference, but when we are talking about thousands and thousands of dollars, it starts to add up. If you choose a variable rate, you could stay below the fixed-rate and pay less overall. However, keep in mind that there is still a chance that the variable rate could increase and surpass the fixed-rate, therefore costing you more in the long run than a fixed-rate mortgage would. But, another benefit of the variable rate is that if you do start to see the variable rate increase drastically, you can make the shift to lock it into a fixed-rate for the rest of the term to save costs in the long run.

So, which do you choose, the variable or fixed-rate mortgage? Well, the majority of Canadians with mortgages lean more towards a fixed-rate, but if you need further help deciding and learning more about your mortgage options, I can help you decide. Lucky for you, I have years of experience as a professional mortgage broker in the Barrie area and know – nearly – everything there is to know about mortgages and which rate will benefit you most. Schedule a meeting with me, Darren Robinson, today by calling my office at (705) 315-0516. Together we’ll review your options, and weighing the pros and cons, so you can make an informed decision that suits your needs specifically to buy your new home.

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