Even if you are a first-time home buyer or an existing homeowner, the mortgage is a big help for everyone. Make sure to shop for mortgages and not settle for the first one you see. There are great deals around the corner; we need to be patient to shop around. Getting the best interest rate in Canada is one of the main reasons we shop for mortgages. We have to get the best mortgage rate available to save money in the long run.
But before anything else, we still have to learn what a mortgage is and how it works. Is it a good choice? Is it worth it to apply for a mortgage? And what are the things you need to consider when applying for a mortgage? Let’s answer them one by one.
What is a mortgage?
A mortgage is an agreement between you and your lender that is legally binding. When you purchase a home, you need to pay for part of the purchasing price, called a down payment. You will have to ask help from your lender or mortgage broker for the remaining cost.
A mortgage is a secured loan, which means your property will be your collateral if you fail to pay your defaults. Also, your mortgage broker can take your property when you forget your mortgage payments.
Before applying for a mortgage, get your pre-approval first. Pre-approval gives you the mortgage value you will qualify for, but it is not a guarantee. After buying a house, you will need to re-qualify with your lender or mortgage broker.
Things to consider when getting a mortgage:
- Mortgage Term. It’s how long your mortgage agreement has been in effect.
- Mortgage principal amount. The outstanding balance of your mortgage.
- Amortization period. The duration in which you pay would pay your mortgage in full.
- Payment frequency. It determines how often you pay your lender. Is it monthly, semi-monthly, weekly, bi-weekly, or accelerated bi-weekly?
Now that we talked about mortgages let’s tackle the difference between mortgage interest rates and how they work. What should you choose, and how can you save money by selecting the right one?
There are two types of mortgage interest rate you can choose from:
Fixed Mortgage Interest Rate
Your mortgage interest rate and your principal and interest payments will stay exactly the same during your mortgage term. Fixed mortgage interest rate is best for individuals who want their interest rates to remain consistent throughout their loan.
There are still pros and cons to this interest rate.
Advantages of Fixed mortgage interest rate
- Predictability. It is easier to predict your monthly payment and budget because the interest rate doesn’t change, giving you duplicate monthly payments.
- Low rates. If you apply for a mortgage when the rates are still low, it will guarantee you lower interest rates for the duration of your term, even if there is an interest rate hike.
- Calculate the cost. Calculating the lifetime cost of borrowing is easier because the rate doesn’t change.
Disadvantages of fixed mortgage interest rate
- Higher than variable rates. It has a higher interest rate than the variable rates.
- Declining rates. If the interest rate declines during your loan term, you will be locked in a higher rate.
- Early repayment charges. You might pay charges if you want to pay more than your regular payments in the hopes of getting your mortgage done early. Which is not cheap.
Variable Mortgage Interest Rate
The interest rate may fluctuate over the mortgage term. Variable-rate mortgages have lower rates because they are a riskier choice for the consumer.
Like fixed mortgage interest rates, the variable mortgage interest rate also has advantages and disadvantages.
Advantages of Variable Mortgage Interest rate
- Lower than the fixed rate. Variable rates are riskier than the fixed rate, which is why variable rates are much lower when it comes to interest rates.
- Harder to budget. Because of the unpredictable payments, it is harder to budget your income.
- Home buyers can qualify easily. In variable rates, monthly payments are lower, making it easier to get approval.
Getting the best interest rates in Canada takes work. It would be best if you had the patience to shop around the market to get the interest rate that will satisfy you. You do not need to settle for less; it will only give you trouble in the future. It is best to determine the rate you know you can afford now and in the future.
Choosing between variable and fixed rates will determine your best mortgage rate in Canada. Take your time settling in just because you want that house. We all want a roof above our heads and the best for ourselves. That is why I advise you to check and shop for mortgage rates around the market. Get referrals if needed. It is all for your own sake.