Lethbridge Fixed Versus Variable Rate Mortgages
Lethbridge client face the difficult decision of deciding between variable rate mortgages and fixed rate mortgages. Campare the Lethbridge mortgage interest rates check out the rates.
For many people, the debate over fixed rate and variable rate mortgages is the interest rate they currently see available to them. However, there is more to consider before you take out a Lethbridge mortgage. Let’s look at the pros and cons of fixed rate and variable rate mortgages.
The Points in Favor of Fixed Rate Mortgages
The greatest benefit of a fixed rate mortgage is predictability. You know what the monthly mortgage payment on your Lethbridge home will be next month and next year. This makes fixed rate mortgages ideal for those who can’t stand uncertainty.
Comparison shopping fixed rate mortgages is rather straightforward, since the interest rates lenders use are both stable and often the same. Yet you still have choices such as whether you want an open or closed mortgage. It becomes easier to compare the offers by lenders based on how they rate your creditworthiness. For example, some lenders consider the self-employed or people with recovering credit a higher risk than others. When everyone is offering the same 3% fixed rate mortgage to people with good credit, you can immediately tell how they’re assessing your financial situation. Talk to the mortgage experts at Whalen Mortgages Lethbridge to find the best rate on a Lethbridge mortgage.
The Problems with Fixed Rate Mortgages
Fixed rate mortgages set the interest rate at a fixed rate. If interest rates fall, you have to pay the higher rate or pay a penalty to refinance the loan until your mortgage comes up for renewal. If you try to time the mortgage market, you could end up with a higher interest rate than someone who bought a house two months later. Note that you can shop around for the best interest rate or better loan terms, that’s what we do for you.
The Points in Favor of Variable Rate Mortgages
A variable rate mortgage closely tracks the Bank of Canada overnight lending rate. This reduces the risk of banks losing money on your Lethbridge home loan because interest rates rose. This allows them to offer a lower interest rate that’s closer to the rate at which they’re actually borrowing the money. For example, a variable rate mortgage may charge 2 percent while a fixed rate mortgage hovers around 3 percent. The higher interest rate and higher resulting house payment costs you money every month compared to what you’d pay with an adjustable rate mortgage.
The interest rate on a variable rate mortgage will be based on both your creditworthiness and current interest rates. A variable interest rate may be a viable way to buy a home today and then refinance in a few years when your credit has improved.
The Problems with Variable Rate Mortgages
The biggest problem with a Lethbridge variable rate mortgage is the unpredictability. The Bank of Canada can adjust the interest rate based on factors like trade wars, a sudden slump in consumer demand or an unexpectedly thriving economy. Your interest rate could raise or fall, and you have no control over it. The overnight rate that major banks borrow at is the basis of mortgage rates, though banks add a few basis points to that interest rate to cover their operating costs and have a profit margin. This means that the average home owner won’t see a 0.25 percent interest rate on their Lethbridge mortgage but more like 1.75 to 2.8 percent. The interest rate won’t change month to month. Instead, the mortgage rates change based on the outcome of periodic Bank of Canada meetings, and it may not change for months at a time.
Observations about Variable Rate Mortgages
In many cases, the variable rate mortgage allows you to afford a home you otherwise couldn’t afford when interest rates are low. This problem was so bad a few years ago that the government rolled out the mortgage stress test.
Many lenders allow you to convert a variable or adjustable rate mortgage to a fixed rate mortgage with no penalty for the remaining term. And this is a way better option then the cost of refinancing a fixed rate mortgage unless it is up for renewal. On the other hand, you can even things out by choosing a shorter loan term. If the fixed rate home loan comes up for renewal every year, it is almost like having a variable rate mortgage.
Apply online today to learn how much you could save on your mortgage.