A recent CIBC report estimated that almost HALF of existing mortgages in Canada needed refinancing in 2018. With everything added on top of that (rising interest rates, stress test rules, etc.) and that’s a lot of Canadians who might have found themselves feeling the crunch – or even still, awaiting what feels like an inevitability. Here’s the thing: It doesn’t have to be so stressful for those still needing to refinance this year or next. What must feel like a big weight can be alleviated by working with a trusted professional who has your best interests at heart.
While last month, I did discuss the importance of products and how they relate to your family’s short and long-term goals being most important, I thought this month I’d look at the difference between fixed-rate and variable-rate mortgages distinctly. While I stress that you need to assess what your plans are before deciding, there has been so many questions about them on various news outlets, I thought it would be best to discuss them here as well!
What is a Fixed-Rate Mortgage?
A fixed-rate mortgage is a loan that allows borrowers to enjoy a fixed interest rate throughout the duration of their loan. For a variety of reasons, this type of loan is very popular amongst consumers. The static nature of the loan repayment installments makes it easy to budget and forecast other plans outside of repaying a mortgage. As is the case today, when rates are rising, the risk is seemingly lower for borrowers (when compared to lenders) as the fixed rate again, lasts the duration of the loan. This is, essentially, a “locked-in” interest rate for borrowers that could equate to savings over time.
What is a Variable-Rate Mortgage?
A variable rate mortgage is a loan that, while payments remain the same, the interest rate within the payment will fluctuate based on market conditions. A common fallacy amongst borrowers is that variable rates equal variable payments. Make no mistake, your regular payment is constant. What “varies” is how much of that payment goes towards interest and how much goes towards your principal. From a budgeting standpoint, in the short-term, it’s essentially no different than a fixed-rate in that your payments are the same. In the long-term, it could affect how much principal you have remaining once your term of the loan is complete.
How Do I Choose?
Well, the easiest answer here is talk to someone you trust about your options. You want options based on where you see yourself in 1, 2 or even 5 years. Depending on how you answer questions an advisor (much like myself) will ask, how you approach refinancing will be determined by your needs. I know it can seem intimidating but you must know you do have options – many of those are in place to help you achieve your goals. Let me help you. Feel free to get in touch with ME anytime and I’ll be happy to get you on your way to a mortgage that’s right for you and your loved ones.