A Simplified Guide to Adjustable and Fixed-Rate Mortgages
When it's time to buy your new house, there are 2 different types of mortgages to take a look at: adjustable rate and a fixed-rate mortgages. If it's your first time buying a home, you'll want to know the difference between the 2 kinds of mortgages so that you can have a general understanding of what they are before the mortgage broker attempts to explain them to you.
Adjustable rate mortgages
This often seems like the most attractive mortgage due to its lower interest rate. At the beginning of the mortgage term you'll be offered an interest rate that is lower than the one you'd find with a fixed-rate mortgage. The problem is that the rate of interest won’t be locked in and later on the monthly payments can go up if the interest rate rises. In some cases it can be a wise choice to get this type of mortgage especially if you are expecting an increase in your financial income within the next few years.
You'll have to pay a higher rate at the beginning of your mortgage for this home loan. The beauty of this type of mortgage is the rate will remain locked in place during the entire term of your mortgage. For many people, a fixed-rate mortgage provides a sense of security since you'll always know exactly how much your monthly payments will be from one year to the next. They will never rise and they will never fall. This also makes it a lot easier to prepare monthly and even yearly budgets.
Taking out an adjustable rate mortgage can be a risk, especially if you're expecting the interest rates to go up. Your mortgage expert can let you know more about these loans and explain any further details to you. As things stand now, the Canadian interest rates aren't expected to go down and people are watching the newspapers to see when the rates will rise. For this reason, most new home buyers will be taking out a fixed-rate home loan unless there are extenuating circumstances that suggest taking out an adjustable-rate mortgage instead.Posted by on