When it comes to buying your dream home, you likely aren’t paying for the price of it in full. Saving for a down payment is important, and having a larger down payment at the point of purchase is preferred. Your monthly payments (or instalments) are what you pay to the lender, a financial institution.
A Mortgage is a monthly payment to the lender.
In simplistic terms, your mortgage is the legally binding contract between you and the lender to pay off the remaining loan over an extended period. It would help if you worked with a mortgage agent to determine the best payment plan for you.
A Fixed Mortgage is a locked period of time, called a term in this instance that you agree to pay your mortgage off within. 5 years is a common choice. Your rate is usually higher, but you have ensured a consistent pay structure over your term. If you break your mortgage, you will incur an Interest Rate Differential Penalty. You cannot switch from a fixed rate to a variable rate without breaking your mortgage.
This rate is more flexible depending on the Bank of Canada. Depending on who your lender is, your rate could fluctuate from month to month. The variable rate is determined at a 50% discount off of your Prime Rate. “The prime rate is the interest rate that commercial banks charge their most creditworthy corporate customers.” Overall a variable rate is lower than a fixed rate. However, the rate fluctuates, which you cannot control. You can lock your variable rate into a fixed rate at any time without breaking your current mortgage.
Speaking with a mortgage lending agent will give you better clarity on the best path to your brand new front door. Given the pandemic, many people are going toward a variable rate in this new era of societal instability. This shift can be viewed as a positive because though you may want to have a set payment each month, it may help change your saving habits, and you could ultimately see a lower interest rate if you choose a variable.
When you opt for a variable mortgage, you can also switch to a fixed mortgage at any time with a lesser penalty, and you are not breaking your mortgage. Statistically, even with the rates changing, variable rates tend to cost less in the long run. So in this day and age, flexibility with your mortgage payments is desirable. We are happy to address your current situation and help you make an informed decision that will be most beneficial.
Savings for a down payment is essential to decrease your monthly instalments and lower your costs. Each month, paying your mortgage reduces your mortgage debt, regardless of whether you choose a fixed or variable mortgage. In the meantime, you not only gain by paying down the mortgage, building equity from that point of view, but your house may accumulate in value, a double-barrelled potential for building wealth.
Call us today at 905.777.2412 and chat with one of our knowledgeable agents. We proudly serve the Hamilton market and understand the changes that have transpired due to the pandemic. We can help you determine the best mortgage plan to live the best life in your dream home, stress-free.