Fixed Interest Rate Mortgage

The interest rate for a fixed rate mortgage is locked in for the full term of the mortgage. Payments are set in advance for the term, providing you with the security of knowing precisely how much your payments will be throughout the entire term.

Pros

· Borrowers know exactly what their monthly payment will be regardless of market rate changes.

· Fixed rates do not rise during periods of rising interest rates.

· Borrowers can self-select their own time frames for many loans ranging from 6-month to 10-year non-mortgage loans.

Cons

· Loans are less flexible under fixed rate agreement terms.

· Fixed rates do not fall during periods of declining interest rates.

· Fixed term fees may incur additional fees should the borrower want to change terms or exit the loan early.

· Fixed rate loans have historically been more expensive over their life than variable rates.

Variable Interest Rate Mortgage

Interest rate can fluctuate based on the Prime Rate from your approved lender.

At most lenders, your principal and interest payments will stay the same for the term, but if the lender’s Mortgage Prime Rate goes down, more of your payment will go towards the principal. If the lender’s Mortgage Prime Rate goes up, more will go towards interest.

Pros

· Loan repayments decrease when interest rates fall.

· Loans typically get better upfront perks like low introductory rates for an initial loan period.

· The interest rate for a variable loan is generally lower than a fixed loan, especially when the loan is incurred.

Cons

· Loan repayments increase when interest rates rise.

· Loans may become more expensive than fixed rate loans should interest rates rise quickly.

· Borrowers face greater risk if overcapitalized or already at repayment capacity.

· Borrowers may not be able to plan or forecast future cashflow due to changing rates.

*Trigger Rate

When interest rates increase, the principal and interest amount may no longer cover the interest charged on the mortgage.

When this happens, you will be required to adjust your payments, make a prepayment, or pay off the balance of the mortgage.

Got questions? Reach out to Angie Li at TMG – she’s here to help!