A mortgage is a large financial commitment with an
overwhelming number of options. Choosing between fixed mortgage rates versus
variable mortgage rates is one of the most important decisions when shopping
for mortgage rates in Oakville, or when it is time for refinancing your
mortgage. Your income, lifestyle, and risk tolerance will weigh heavily on your
decision when deciding on the type of mortgage rates in Oakville that are right
for you. Here is a summary of the main differences between the two mortgage
rates.
Fixed Mortgage Rates
- Fixed-rate mortgages allow you to lock in at an
interest rate for a fixed period of time, which is the term of the mortgage.
- A main benefit is that you will know what your
payments will be each month.
- The risk tolerance is low, but you have to pay a
premium for the security you get with a fixed rate in the form of higher
interest rates.
- The downside is that you cannot take advantage
of a lower interest rate, and the ability to have more of your payment go
towards the principal and less to interest if the interest rates drop during
the term of your mortgage.
- Fixed rates are affected by the Government of
Canada bond
yield for the same term.
Fixed mortgage rates are best for you if you enjoy the
security of a rate that is guaranteed not to change for the term of the
mortgage, and if you are willing to pay a slightly higher interest rate for that
security. If you prefer the peace of mind of predictable mortgage payments that
are guaranteed not to change, you may want to opt for fixed mortgage rates.
Variable Mortgage Rates
- Interest rates will fluctuate with the lender’s prime
interest rate.
- A main benefit is that a variable rate comes
with a typically lower interest rate than with a fixed-rate mortgage.
- Variable rates are affected by the prime rate,
which is ultimately affected by the Bank of Canada key
overnight lending rate.
- The risk tolerance is high since there is the
fear of rising rates.
- Regular mortgage payments are set for the term
even though interest rates may fluctuate during this time.
- When interest rates go down, an increased amount
of your payment goes to pay principal. As more money goes into the principal,
the faster the mortgage is paid off.
- When interest rates go up, there will be an
increase in the portion of payment that goes into paying interest, and less
going towards paying down the principal.
Variable mortgage rates are best for you if you are
comfortable with interest rate fluctuations, gaining possible long-term savings
in interest.
As no one can be certain what the future holds, it is best
to consider your own situation when choosing between fixed and variable
mortgage rates in Oakville. You are not alone in shopping for mortgage rates in Oakville.
Mortgage
specialists are highly trained professionals who can work with you and
guide you through the entire mortgage process. Finding a lender committed to
providing personalized service that is professional, ethical, and knowledgeable
will provide you with the optimal financial solution for you.