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Fixed or Variable Mortgage: What Is Better For You?

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Things have changed recently for mortgages and mortgage brokers due to the interest rate increases. It would appear as though the perceived risk of a variable rate mortgage is well worth the reward despite the rate increases. What’s the difference between a variable rate mortgage and a fixed rate mortgage, and how do these rate increases affect a borrower?
The best mortgage rates for each individual will depend on many things, including the type of mortgage a borrower decides to choose. Make sure you understand the two main types of mortgages available when you speak to a mortgage broker.
Fixed Rate Mortgages
A fixed rate mortgage is exactly what it sounds like: a fixed interest rate. These rates are generally a little higher than a variable mortgage rate. What makes these loans appealing is the fixed payment amount the borrower must pay. This consistency can be very appealing to many people for a variety of reasons. For the approx. 1% premium and many 5-year fixed mortgages, it can seem like a no-brainer for the individual craving consistency. With a variable mortgage, there’s always the potential for a spike in lending rates that would drastically affect the payments. A fixed mortgage borrower may pay more over the long run if rates don’t heavily increase, but there is less risk in a fixed mortgage when it comes to potential rate increases. These types of mortgages are best for people on fixed budgets, with unreliable income, or who do not handle market swings well.
Variable Rate Mortgages
A variable rate mortgage is a loan in which the interest paid on the outstanding amount varies with the market. This results in varied monthly payments for homeowners. In the long run, a variable mortgage rate can offer the best mortgage rates and can save you money. These savings are due to the trend of interest rates tending to decline at least once in a five-year period.
Many borrowers are fearful of a variable rate mortgage, however, due to the inconsistent nature of their payments and the potential risk involved with interest rate hikes. In the long run, it looks like variable rate mortgages could save you money thanks to the nature of the market.
Interest Rate Increases
The Bank of Canada (BoC) has increased their key interest rate from 0.5% to 1.5% in the past 12 months. When variable rates increase, banks usually follow promptly with increasing the fixed rate amounts as well. This will mean re-evaluating what a potential homeowner can afford, especially in markets like Victoria, BC. With rates increasing, it’s less about a fixed or variable mortgage and more about the total lending amount an individual can afford. If you have more wiggle room in your budget, a variable rate mortgage may be a better way to go. Speaking to a mortgage broker in Victoria BC is your first step to understanding what kind of mortgage you should be looking at and what you can afford.
Get in touch today, and we can talk about the best mortgage rate and mortgage type for you: fixed or variable.
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