Mortgages can be a challenging topic to first-time homebuyers, especially when they aren’t well-versed in financial terms and home-buying concepts. This is why it comes with no surprise that first-time homebuyers will carry a trunkload of questions that will help them understand the mortgage process.
One of the most common questions people have regarding mortgages is the type of mortgage they should select — a fixed-rate mortgage or a variable-rate mortgage. However, don’t feel disheartened if you don’t fully understand these terms, as even the most experienced homeowners also tend to struggle with these choices.
This is why you must work with a reputable agent, such as Ghummaz Bhatti from Ottawa Mortgage Services, who can explain these concepts to you. With the help of an expert, you can make better-informed decisions when selecting the right rate based on your financial health and capabilities.
You’re probably here because you’re one of those who scratch their heads when they need to decide on their mortgage rates. If that’s the case, you’ve come to the right place. In this article, we’ll share what you need to know about fixed- and variable-rate mortgages and why you should consider each type. Let’s take a look!
What Is the Difference Between Fixed and Variable-Rate Mortgages?
Before digging deeper into fixed-rate and variable-rate mortgages, it’s best to understand the basics of each concept.
A fixed-rate mortgage focuses on a fixed amount of interest that you would pay for in the duration of your mortgage term. On the other hand, a variable-rate mortgage is based on the current Prime Rate. It could fluctuate, depending on the status of the market and economic climate.
Basically, fixed rates are typically connected to the world economy, whereas variable rates are linked to the Canadian economy.
Each rate can be beneficial to a borrower, depending on your financial health and capabilities. This is why it’s crucial to seek assistance from reputable mortgage agents to ensure that you make sound financial decisions that can benefit you in the long run.
Why Should I Consider a Fixed-Rate Mortgage?
As a first-time homebuyer, stability is your priority, and fixed-rate mortgages can give you that sense of ease when you enter a mortgage space.
The great thing about having a fixed-rate mortgage is that your payment will not change throughout your paying term, allowing you to budget your income and expenses until you pay it off.
But when the Prime Rate drops, you may miss out on opportunities in saving money on interests. Though similarly, when the Prime Rate increases, you’ll be protected from the hike and won’t need to pay surprising fees.
Why Should I Consider Variable-Rate Mortgages?
As mentioned earlier, variable-rate mortgages are based on the Prime Rate in Canada. This means that the interest you pay on your mortgage may fluctuate depending on the economic climate.
When you consider variable-rate, some individuals may set standard payments based on a fixed rate, which would push their interest rate much lower, allowing them to pay more to the principal instead of paying interest.
When the rate goes up, a person will pay more interest instead of the direct principal loan. This is why some variable-rate mortgage holders simply go with the economic flow and allow their payments to drop and rise depending on the Prime Rate.
The Bottom Line: But Which Mortgage Rate Should I Choose?
You need to consider several factors when you’re choosing your mortgage rate, and that includes your financial health, your income, and the penalties you may experience.
But regardless of which type of rate you’re leaning towards, it’s important to have a clear idea of your mortgage contract and finances before you sign a deal. This is where Ottawa Mortgages Services come from since they can provide you with assistance regarding your financial situation and review all the options that could lead you to make the best financial decisions.
Why Choose Ottawa Mortgage Services?
Whether you’re a first-time home buyer or an experienced homeowner, Ghummaz Bhatti can provide you with exceptional financial assistance that can benefit you in the long run — from first-time home buying assistance, pre-approval letters, refinancing, debt consolidation, and more.
Get a free assessment or try our mortgage calculator today!