Home buyers and those looking for a new mortgage traditionally have two types of rates to chose from: fixed rate and variable rate mortgages. There are advantages and drawbacks to both. There are many other choices offered by lenders but fixed and variable remains the most common.
When you select a fixed rate mortgage, your mortgage rate and mortgage payments will stay constant for the term of your mortgage. If you select a 5 year fixed term mortgage, your rate and the amount you pay monthly or biweekly will stay the same for 5 years.
PROS AND CONS OF FIXED RATE MORTGAGE
You can essentially “set it and forget” as your payment amount will not change for the term duration. This makes budgeting and financial calculation much easier than with variable rates.
If the mortgage rate decreases during your term you will be paying the higher, agreed upon, mortgage rates. Therefore it can be more expensive than a fixed rate. If the mortgage increases however, your will be paying a lower rate then the present rate as you are ‘protected’ from fluctuations.
WHEN TO CHOSE A FIXED RATE MORTGAGE
There are few clean cut situations. Most home buyers on fixed income would benefit to know how much exactly their payment amount is for the term. Younger home buyers, with new or growing families, changing careers tend to prefer fixed rate mortgages rates. While more established and older generations prefer variable rates.
HOW TO CHOSE THE RIGHT TYPE OF MORTGAGE RATE
When mortgage rates are historically low and not expected to fall further it may be a good time to select fixed rates. Fixed rate mortgages offer you a certain security. You will know what you have to pay for the term of the mortgage. This security can be very valuable for most home buyers.
If the mortgage rate decreases during your term you will be paying the higher, agreed upon, mortgage rates.
When mortgage rates are historically low and not expected to fall further it may be a good time to select fixed rates.
ASK A MORTGAGE EXPERT
There are many components of a mortgage. Rates are only the most well known. Make sure you research the best mortgage for your needs.
Ask a mortgage expert, contact The Wilson Team or call 613-695-9250 for free advice on the various mortgages available.