Choosing the Right Mortgage: Fixed-Rate vs. Adjustable-Rate

Choosing the Right Mortgage: Fixed-Rate vs. Adjustable-Rate

Buying a home is one of the biggest investments people make in their lifetime. It’s a long-term investment that provides not just a roof over your head, but a large asset in your financial portfolio.

If you’ve found your dream home, shopping for mortgages in North Vancouver can be overwhelming. A mortgage broker can help ease some of the confusion as well as provide advice on the best products available for your financial situation.

Before you speak with a North Vancouver mortgage broker, it helps to understand what mortgages are and what interest rate options are out there.

What is a mortgage?
A mortgage is a loan that closes the gap between the purchase price of a home and your down payment. So, for example, if you’re purchasing a home for $300,000 and you have 30,000 saved for a down payment, you would need a mortgage of $270,000.

You typically make monthly payments on your mortgage over the course of 5, 10, 15, 20, 25 or 30 years, depending on what you can afford.

Over the course of your mortgage, your lender charges interest on the loan determined, in part, by the Bank of Canada, called “prime rate.” The lender places additional interest on the prime (+prime) or a discount (-prime) based on the current economy.

The shorter the repayment term of your mortgage, the less total interest you’ll pay. However, the longer your repayment term, the more affordable your monthly payments are.

Fixed vs. Adjustable: Which one is better?
Affordability is also associated with the type of interest rate you choose; fixed-rate or adjustable-rate.

  • Fixed-rates are exactly that. You lock in a specified interest rate over the duration of your mortgage. Fixed-rates are usually higher than adjustable, but there’s less risk involved. Fixed rates are particularly beneficial if you happen to buy your home when interest rates are at an all-time low.
  • Adjustable-rates vary with the market, or “prime rate,” we talked about earlier. With an adjustable rate, your monthly payments fluctuate. Because of the inherent risk, adjustable-rates are usually much lower. With this option, find out what the cap is on the interest rates so that you can figure out if you can afford the worst case scenario should interest rates rise significantly.

A skilled mortgage broker in North Vancouver will give you knowledgeable advice geared to the current market. Mortgage brokers have access to large Canadian banks as well as private lenders in the area to get you the best mortgage rates possible.

At Rala Investments Ltd., we help first-time home-buyers, as well as people in difficult financial circumstances, find mortgages in North Vancouver. To learn more, visit our website or contact us today!