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June 20th, 2019 
Todd Black
Sales Representative
BUS:(416) 966-0300 CELL:(416) 731-7542


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Choosing the right mortgage can be a bit of a challenge. But understanding your options when it comes to the interest rate associated with your loan should be your very first step. Should you opt for a fixed rate mortgage where your monthly payments will remain the same for three or five years or are you more interested in a variable rate mortgage where your monthly interest rate, and payment may fluctuate? Let us look at both options.

Fixed Rate Mortgages

This is by far the most popular type of mortgage whereas your interest rate is fixed for a certain period of time. A standard fixed rate mortgage term is five years. In this case, the interest rate is based on the bond market and it will vary based on economic, political, and business conditions. But remember, that once you lock in your interest rate, it will not chance over the life of the term regardless if the posted interest rate goes up or down.

Variable Rate Mortgages

With variable rate mortgages you will still need to be pre-approved for a three or five year fixed rate mortgage. This step allows the lender to determine whether you would be able to carry your mortgage should the interest rate go up. Historically, variable rate mortgages have had significantly lower interest rate that fixed mortgages however, the interest rate may fluctuate based on the market conditions and the interest rate posted by the central bank. Yes, you will save money and enjoy lower mortgage payments but if you are unable to handle the uncertainty of what your next month’s mortgage payment will be, this type of mortgage is not for you.

You should take the time to ask yourself how comfortable you are with uncertainty. Are you a risk taker or do you prefer to play it safe? In the long run, variable rate mortgages will cost less in interest but will you be able to sleep at night knowing that your mortgage payment may be significantly higher six months or a year from now? These are important questions to ask yourself.

Another key element to consider when shopping for a mortgage is whether or not you will be able to make additional payments, either as a lump sum on the yearly anniversary or as monthly top up payments. Not all mortgages are created equal and some will offer more flexibility than others. By making additional payments whenever you can you are effectively paying down your mortgage faster and reducing the total borrowing cost.

Another aspect to evaluate is the possibility of getting out of your mortgage early. Variable rate mortgages have a tendency of being a little more lenient on this subject and may allow you to break your mortgage with a smaller penalty.

Selecting the right mortgage is an important step when buying a home. You want to make sure that you are comfortable with your loan and that it fits your financial needs, your personality and your lifestyle. Take the time to do some research, speak to a mortgage broker and gather as much information as possible before signing on the dotted line. It is after all the largest loan you will ever take!

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