Mortgage Types: Fixed vs. Variable

Mortgages come in two main types: fixed and variable. A fixed-rate mortgage maintains a consistent interest rate throughout the loan term, offering stability but potentially higher initial rates. Variable-rate mortgages, on the other hand, can fluctuate with market changes, offering potential savings but increased uncertainty for borrowers.

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When financing a home, borrowers are presented with a crucial decision: to opt for a fixed or variable-rate mortgage. Each option has advantages and considerations, underscoring the importance of comprehending their fundamental distinctions before committing.

This comprehensive comparison delves into the features of fixed-rate and variable-rate mortgages, how they affect the interest paid in the short and long term, and the structure of payments. Considering various factors, including your unique financial situation and the prevailing economic climate, will play a pivotal role in shaping your choice.

By the end of this exploration, you will have a clearer understanding of which mortgage type best aligns with your financial aspirations and preferences, enabling you to embark on your homeownership journey confidently and well-informed.

What is a Fixed-Rate Mortgage?

Fixed-rate mortgages are a specific type of home loan that offers borrowers a constant interest rate during their mortgage term. This means that borrowers will consistently make the same monthly mortgage payments from the initial agreement until the end of the loan term. Regardless of fluctuations in prime interest rates, the interest rate on a fixed-rate mortgage remains unchanged, providing stability and predictability. These qualities make fixed-rate mortgages appealing to individuals seeking a reliable and manageable payment structure over the long haul.

What is a Variable-Rate Mortgage?

A variable-rate mortgage is a type of home loan in which the interest rate varies over time, influenced by the bank’s prime rate, which, in turn, is affected by fluctuations in the Bank of Canada’s overnight rates. Unlike fixed-rate mortgages, the interest rate on a variable-rate mortgage is not fixed for the entire loan term. Instead, the rate is determined as a percentage above or below the prevailing prime rate (e.g., prime – 0.35%).

While the prime rate may change over time, the specific variance from the prime rate (e.g., -0.35%) will remain constant throughout your mortgage term. As the prime rate moves, your mortgage interest rate will adjust accordingly by the set percentage above or below the prime rate, resulting in changes to your monthly mortgage payments.

Pros & Cons of Fixed-Rate Mortgage

What Is The Current Fixed Mortgage Rates?

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Pros & Cons of Variable-Rate Mortgage

What Is The Current Variable Mortgage Rates?

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Vik Palan

Vik Palan

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