Perhaps you’re about to buy your first home or want to refinance your mortgage. Either way, it’s important to learn all you can about mortgage rates, so you can be as prepared as possible and choose the best option for you and your finances. Here’s what you need to know about mortgage rates in Canada:
Will My Mortgage Rate Ever Fluctuate?
Mortgage rates do vary over time, and sometimes from day to day. It can be frustrating or even pleasant at times to be quoted a certain mortgage rate, only to learn a week later that it has either increased or decreased. While your real estate agent and/or banker should keep you apprised of the most current mortgage rate information, it’s also a good idea to do your own research. For instance, TD.com is a great resource for finding out current mortgage rates for closed and open mortgages with fixed or variable options.
What Do Fixed and Variable Mortgage Rates Mean?
Deciding whether to go with a fixed rate or variable mortgage is one of the most important decisions you’ll make. To determine which type of mortgage is right for you and your family, it’s a good idea to understand the differences between them.
A fixed-rate mortgage has an interest rate that’s guaranteed for the duration of the entire term. Regardless of economic conditions, your rate will stay the same. This type of rate is impacted by bond yields, and when they rise, so do the fixed mortgage rates.
Like its name implies, a variable-rate mortgage has an interest rate that fluctuates based on the prime lending rate. The rate on a variable mortgage is based on a “prime plus/minus” discount or premium. For instance, your mortgage banker might quote it as prime plus 0.2 or prime minus .5 percent. If the prime rate goes up during your mortgage term, so will your payments. However, the opposite will also take place if the prime rate decreases.
Which Type of Mortgage is Better?
This is a great question and one that you’ll need to decide for yourself. It all boils down to your comfort with risk tolerance, ability to pay a higher mortgage rate and if you prefer a potentially higher but predictable payment. You could go with a fixed-rate mortgage if you’re comfortable with whatever rate your mortgage banker is quoting you. This is a great option if you’re OK with the rate, can easily cover the payments and want to be over and done with figuring out how much you’ll pay every month for your home.
However, if you have this nagging feeling that if you commit to a certain rate, only to learn in six months that it’s now lower, then it sounds like it’s worth looking into this option more closely. With a variable-rate mortgage, you can also lock into a fixed-rate mortgage at any time without paying a penalty. If you’re comfortable taking a bit of a financial risk, you could always start with a variable rate loan and then lock into a fixed-rate mortgage, as long as the term you’re in currently is the same or greater in length than the one you currently have.
Congratulations on Buying Your New Home!
Buying a new home is exciting, as is refinancing a home to get a better rate. Like many things in life, knowledge is power, so taking the time to learn all you can about fixed and variable mortgage rates — and which one is best for you — will make the home-buying process smoother and lead to a financially-sound experience.