The old days of one-mortgage-fits-all are long gone, and that’s a good thing. Homebuyers have more options than ever before to find a home loan that fits their individual needs. Unfortunately, many people are content to sit back and let someone else make these crucial financial decisions for them.
Working with a Calgary mortgage broker to select a loan that fits your mortgage style puts you in the driver’s seat. No one really wants to let someone else make such important decisions for them; they just lack information. That’s why Mortgages by Candice offers many resources to help buyers make informed decisions suited to their individual financial goals.
But what do we mean when we talk about mortgage style? In this article we look at fixed and variable rate loans, so you can learn more about which one might be best for you.
Fixed Rate Mortgages
This type of loan has been used for years to finance home purchases. It is what most of us think about when mortgages are discussed, but that doesn’t necessarily mean it’s the right choice for everyone.
With a fixed mortgage, borrowers pay the same interest rate over the entire term of the loan and make predictable payments with little variation each month. The actual length of the loan can vary, but they typically range from fifteen to thirty years. Buyers who choose a fixed-rate Calgary mortgage with a longer term will pay less each month but incur higher interest costs, and those who select a shorter term will have a higher monthly bill but pay less interest overall.
This type of mortgage is based on bond futures. When buyers lock in to a fixed-rate mortgage, they know they will be protected from rate increases in the future. Of course, the opposite is also true: if rates should go down, buyers will still be paying the higher rate, unless they opt to refinance. Home refinancing is just one of the many services Mortgages by Candice can provide homeowners.
Variable Rate Mortgages
Also called floating-rate or adjustable mortgages, the interest rate on this kind of loan can fluctuate to reflect changes in current rates. A Calgary variable rate mortgage tracks the prime rate, and when the prime rate is low lenders offer variable mortgages with a smaller adjustment value, and when the rate is high, they offer a larger adjustment value.
Variable rate mortgages tend to be less expensive because they represent the cost of funds today while fixed rate mortgages operate under the assumption that rates will increase with time. Variable loans usually offer a lower introductory rate making it easier for homebuyers to qualify for a larger loan with a lower monthly payment—at least until the rate changes.
The obvious downside to a variable rate mortgage is rate fluctuations can cause the monthly mortgage payment to increase suddenly, and if homeowners are unprepared, this can create financial difficulty.
Deciding On Your Style
Homebuyers have a range of factors to take into consideration when determining which type of mortgage works best to meet their needs.
Consider these questions:
- Do you plan to live in your home for a extended period of time?
- Are you buying a home at the higher end of what you can afford?
- Do you prefer a predictable payment each month?
- Have you owned a home before?
- Do you plan to sell the home after a few years?
- Are you open to taking risks? Do you have the income or savings to back up that willingness?
If you answered “yes” to questions 1-3, a fixed rate mortgage is probably a smart choice. If you said “yes” to 4-6, then a variable rate mortgage might be more your style.
Mortgage planning with an experienced broker can make a huge difference. Your broker can advise you on the advantages and disadvantages of a variety of products from multiple lenders, so you can plan your Calgary mortgage to help you meet your goals.
Understanding your individual needs and determining your mortgage style are just the first steps on the path to financial independence. At Mortgages by Candice we believe buying a home is not just about having a place to live, it should have a positive effect on your future as well. We will be there to advise you every step of the way, from pre-approval through closing. Contact Candice today to get started!