What is a Mortgage Rate?
Mortgage rate describes the amount of interest charged by a lender to the mortgage holder each year. It is expressed as a percentage, just like the Annual Percentage Rate on a credit card. The lower the mortgage rate, the less a mortgage holder ends up paying in the long run. Mortgage rates are decided according to many factors, including borrower finances and market conditions.
What is a Fixed Rate Mortgage?
A fixed rate mortgage is a common loan where interest rates remain unchanged until the term of the mortgage is up. Its simplicity makes it the most popular type of home loan. Neither principal nor interest will fluctuate with time, so there are no “surprises.”
Fixed rate mortgage terms are usually 3-5 years. During that period, monthly payments don’t changed unless changed by the borrower. In general, if you want to change the interest rate of a fixed rate mortgage – to take advantage of superior market conditions, for example – you need to refinance the loan. This essentially generates a new loan referred to as a refinance.
What is a Variable Rate Mortgage?
A variable rate mortgage is a home loan with an interest rate that can change now and then based on the Bank of Canada Prime lending rate. It is also called an adjustable rate mortgage or ARM. They are normally set at Prime -XX%.
Variable rate mortgages typically offer more attractive interest rates than fixed rate mortgages do. In some cases, the interest rate can even adjust downwards over time. Certain restrictions do prevent rates from increasing or decreasing too rapidly.
Some people choose a variable rate mortgage because it offers superior terms compared to the fixed rate mortgage they are eligible for. At anytime during your variable rate mortgage term you can choose to lock in to what ever the fixed rate offered at that time is.
Speak to one of our Mortgage Specialist to determine what the best option for you is.