Planning to purchase your first home is a major milestone. Although you are likely feeling excited to start a new phase in your life as a home-owner, you’re also probably feeling a little stressed out as you attempt to navigate the purchasing process.
From home inspections to mortgage preapprovals, there is certainly a great deal of information that first-time homeowners need to know. For mortgage newbies, here are a few mortgage basics to help you understand the different types of mortgages that are available, and which one may be right for you.
Fixed Rate Mortgage
As the name implies, a fixed rate mortgage includes an interest rate that is fixed and does not change throughout the term of the mortgage (typically 1 to 5 years), even if interest rates increase or decrease. This type of interest rate is great for those who like stability and feel more comfortable with a set budget. There is one downside, however – fixed rate mortgages typically involve a higher interest rate than other mortgage options.
Adjustable Rate Mortgage
Based on the current prime interest rate, adjustable rate mortgages are reviewed at regular intervals and adjusted accordingly. It’s important to note that this rate adjustment affects both your monthly payment, as well as the interest rate attached. As such, an adjustable rate mortgage can be beneficial when interest rates decrease (you’ll enjoy lower mortgage payments) but can be a little problematic if interest rates increase.
Variable Rate Mortgage
Like adjustable rate mortgages, variable rate mortgages are affected by changes in the prime interest rate. However, unlike an adjustable rate mortgage, your monthly payment will always stay the same, even when interest rates increase or decrease. Instead of affecting the amount you pay each month, an increase or decrease in the interest rate will affect how much of your payment will be applied to the principal of your mortgage loan, allowing you to take advantage of lower rates and still have some stability. It’s also important to note that this type of mortgage often involves a lower interest rate in comparison to a fixed rate (although this can change if interest rates increase dramatically).
For those who want the best of both worlds, some lenders also offer a hybrid mortgage. A hybrid mortgage is a combination of a fixed rate mortgage and a variable rate mortgage. Essentially, part of your loan is financed with a fixed rate mortgage and the other part is financed with a variable rate. Although this sounds great, it sometimes means that the two parts of your loan may have different terms which can be tricky to manage.
Now that you know a little more about the different types of mortgages that are available, you may still be wondering which option is best for you right now. As an experienced mortgage broker, I work with clients in Barrie and surrounding areas to help them find the best mortgage solution, including the best type of mortgage. Connect with me today by calling 705-315-0516 to set up an appointment and let’s get you those keys to your new home!