Fixed and variable interest rates
MortgagesThe pros and cons of variable and fixed rate mortgages…Languages Available Daragh CassidyChief WriterMore and more people are choosing fixed rates over variable rates because they offer stability and peace of mind. That said, each interest rate has its pros and cons. You may know the difference between a variable rate mortgage and a fixed rate mortgage (if you don't, click here), but do you know the pros and cons of each? And do you know which type best suits your needs?
Flexibility is undoubtedly the biggest advantage of a variable rate. You don't have to worry about penalties if you want to increase your monthly mortgage payment, pay it off early or switch lenders, and you could also benefit from falling ECB interest rates (if your lender responds to them).
Variable rates offer no stability or predictability, which means you are at the mercy of changes in rates. Yes, the interest rate can go down during the term of the mortgage, but it can also go up. Rate changes are hard to predict and a lot can happen over the course of a 20- or 30-year mortgage, so you could be putting yourself in a financially vulnerable position by choosing a variable rate.
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Variable-rate mortgages typically offer lower rates and more flexibility, but if rates go up, you may end up paying more at the end of the term. Fixed-rate mortgages may have higher rates, but they come with the guarantee that you will pay the same amount each month for the entire term.
Whenever a mortgage is contracted, one of the first options is to decide between fixed or variable rates. It's easily one of the most important decisions you'll ever make, as it will affect your monthly payments and the total cost of your mortgage over time. While it may be tempting to go with the lowest rate offered, it's not that simple. Both types of mortgages have their pros and cons, so you should understand how fixed-rate and variable-rate mortgages work before making a decision.
In fixed-rate mortgages, the interest rate is the same throughout the term. It doesn't matter if interest rates go up or down. The interest rate on your mortgage will not change and you will pay the same amount each month. Fixed rate mortgages usually have a higher interest rate than variable rate mortgages because they guarantee a constant rate.
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When choosing a mortgage, don't just look at the monthly installments. It's important to understand how much your interest rate payments are costing you, when they can go up, and what your payments will be after that.
When this period ends, it will go to a standard variable rate (SVR), unless you remortgage. The standard variable rate is likely to be much higher than the fixed rate, which can add a lot to your monthly installments.
Most mortgages are now "portable", meaning they can be moved to a new property. However, the move is considered a new mortgage application, so you will need to meet the lender's affordability checks and other criteria to be approved for the mortgage.
"Porting" a mortgage can often mean only keeping the existing balance on the current fixed or discount deal, so you have to choose another deal for any additional moving loans, and this new deal is unlikely to match. the schedule of the existing agreement.
If you know you're likely to move within the early repayment period of any new deal, you may want to consider offers with low or no early repayment expenses, which will give you more freedom to shop around among lenders when the time comes. to move
Should I go variable or fixed 2022
SEE: During a press conference on Wednesday, Bank of Canada Governor Tiff Macklem said that as a result of ongoing supply chain disruptions and rising energy prices, the central bank now forecasts that annual inflation rates will continue to rise to almost five percent by the end of the year before returning to their target of two percent by the end of 2022 – October 27, 2021
On Wednesday, Canada's central bank said it is keeping its key interest rate at 0,25 percent, where it has been since March 2020. But the details of its economic policy announcement have analysts warning it is likely that interest rates rise earlier and faster than expected.
Those revised forecasts have implications for current and future borrowers, including homebuyers and current mortgage holders: “Barring another economic calamity, rates are going to go up. And they will go up before the end of spring, possibly sooner," says mortgage strategist Robert McLister. The story continues in the next ad
Amid rising inflation, the central bank hinted that the first rate hike could take place as soon as the April-June quarter of 2022. Analysts had expected rates to start rising from record lows in the second half of 2022.
