There are many options to consider when it comes to your mortgage’s interest rate. Before making your decision, it’s important to know the different types of interest rates and have a basic understanding of how they work. It doesn’t have to be complicated, especially when you’re working with me! I’ll help you find the best option so that you can feel confident about your mortgage plan. Keep reading to learn more about interest rates and what they mean for you.
Fixed Interest Rate Mortgage
This is the go-to for many people. It’s a rate in which the payment remains the same throughout the entire term of your mortgage. It’s one set payment that goes towards the principal and interest cost. With a fixed payment, you have the comfort of knowing how much your payment will be. If you prefer more predictability, this may be the choice for you. However, keep in mind that a fixed interest rate is locked in for the remainder of the term. Breaking the term can result in a more significant penalty. Fixed-rate mortgages often have higher rates than variable rate mortgages.
Variable Interest Rate Mortgage
This is a rate in which the product is tied to prime; you either have prime minus or prime plus. For the term of your mortgage, you’ll have either the discount or the addition, depending on the circumstances. Since prime changes with a variable rate mortgage, more or less will go towards the principal or interest amount. The variable will balance within the same payment. In most cases, the interest rate is lower with a variable interest rate than with a fixed interest rate. However, the rise and fall of interest rates can be difficult to predict.
Adjustable Interest Rate Mortgage
These flexible interest rates are common with monoline or non-bank lenders. If prime changes, the payment itself will change along with it. It adjusts to a new amount. There are many different features with an adjustable-rate mortgage.
Every option has its benefits. Although uncertainty can be intimidating, it’s essential to know why fixed, variable, and adjustable mortgage rates can have advantages and disadvantages. The choice is always yours to make, and you can feel at ease as I’m happy to walk you through the process! Book a call with me to learn more!