Is a Fixed Rate Mortgage or a Variable Rate Mortgage Better?

When you’re looking at what kind of mortgage you want, you’re going to want to understand what your options are; this is when you’re going to talk to one of our Toronto mortgage brokers. We’ll be able to help you figure out which type of mortgage is right for you. Here we’re going to talk about the differences between a fixed rate mortgage and a variable rate mortgage. Just because they sound the same doesn’t mean they are, so it’s important to make sure that you’re getting the best one for you.

What are Fixed Rates?

Fixed rates mean that the rate of interest is fixed over the term of the loan. This can change however if you don’t keep up with payments or you hit one of the contingencies in the loan (like paying early). So even if you’re offered a fixed rate mortgage, you’re going to want to be careful about how it’s structured so you’re getting a good deal. It’s also important to note that a fixed rate mortgage will usually start out with a higher interest rate than a Canadian variable rate mortgage; if done right you’ll get a lower rate of interest over the life of your loan. Speak with a Toronto mortgage broker like us before you choose this kind of mortgage.

What are Variable Rate Mortgages?

Canadian variable rate mortgages are mortgages with interest rates that aren’t fixed. We as Toronto mortgage brokers will offer these to you alongside fixed rate mortgages. Low interest rates are forecasted to last through 2014, so you’ll have awhile to pay down as much principal as possible.

You’ll want to pay attention to something known as the “caps” in your mortgage paperwork. An annual cap will be the amount of points that a mortgage can fluctuate each year. A lifetime cap is the max cap on how much higher it can go over the lifetime of your loan. So if you get a VRM at 5% now, and your lifetime cap is 6%, your interest rate should never go above 11%. You’ll want to speak with a Toronto mortgage broker to make sure that there are no caveats in the contract to make this higher.

What are Hybrid Mortgages?

Hybrid mortgages generally start off as a fixed rate mortgage and slowly convert over to a variable rate mortgage over time. These will get you big savings on your interest rates over time, but they can balloon to a high interest rate when they convert to a variable rate mortgage. You’ll want to make sure you’re very careful about taking a Canadian hybrid mortgage. This is why you’ll want to speak with one of our Toronto mortgage brokers to make sure that you’re making the right choice for you.

There are many kinds of mortgages, but there is only one right solution for your needs! Let us help you find it today; why pay more than you have to?