What Are Fix Mortgage Rates?
Fix mortgage rates are used for home loans that don’t change over the term of the loan period. Fixed mortgage rates in Canada for mortgages are preferred by almost 70% of borrowers. When Bank of Canada rates rise, fix mortgage rates dont change.
This keeps mortgage payments (principal and interest) the same over the full term mortgages. Many borrowers love it because it provides financial stability and predictable cash flow for them.
In Canada, 5 year term with fix rate mortgage tends to be most discounted when home buyers buy real estate with less than 20% of the down payment.
However, fixed interest rate tends to carry hefty penalties, which may go up to 4% of the balance amount. In some cases, the lender may also impose restrictions on refinancing unless the property is sold.
Fix Mortgage Rate And Amortization Period
All 6 major banks indulged in Canadian mortgages use a maximum amortization period of 25 years to qualify a mortgage loan with less than 20% down payment aka high ratio mortgages.
For all conventional mortgage loans (purchases with more than or equal to 20% down payment) the maximum amortization period of 30 years is used to qualify a loan.
More than 6 Million homeowners in Canada have bought their house on mortgage out of the almost 10 million homeowners in the country. More than 74% of mortgage holders opted for fixed rate mortgage loans in the year 2019, up 6% from 2018.
Statically speaking, Fix rate mortgages have seen a sharp increase in popularity. And one thing we know for certain about financial markets is that nothing happens without solid financial reasons.
This article will discuss anything and everything pertaining to fix mortgage rates, including their benefits, available terms, and factors that determine them, to name a few.
A mortgage loan is an agreement that takes place between any person and a lender that grants the lender the right to take away the person’s property in the event of non-payment or non-compliance.
Mortgage loans are commonly used by individuals when they are interested in buying a home of their own or even when they wish to borrow money against the equity of their existing home.
It is worth reminding here that all federally regulated banks use a mortgage stress test to qualify you for a mortgage. Mortgage Brokers, however, have access to lenders who don’t use a stress test to qualify for a mortgage.
NRST (Non Resident Speculation Tax) applies to all real estate purchases being done by non Canadians (foreigners) in the area of the greater golden horseshoe area.
When Comparing Mortgage Rates, What is Important?
A variable rate mortgage is one where the rate of interest isn’t the same throughout the term. The rate of interest depends upon the prime rate, which is determined and updated regularly by the Bank of Canada.
When compared to fixed mortgage rates, variable rate mortgages are less popular owing to the financial uncertainty they cause. Payments can fluctuate from one installment to another depending on the prime mortgage rate. Less than 30% of borrowers opt for Variable Rate Mortgages.
What are the benefits of fixed mortgage rates?
Since a fixed rate mortgage loan offers the fixed monthly payments throughout the entire tenure of the loan, homeowners need not get stressed or make emergency arrangements for increasing the rate for fixed term they signed up for.
A fixed rate mortgage safeguards borrowers against unprecedented changes in interest rates that every economy is susceptible to provided the economy is doing well and the demand for money is consequently higher. When interest rates increase, those who cannot afford to pay higher monthly payments (principal and interest) at that moment will suffer due to stretched budgets.
What are The 3 Major Factors Fixed Mortgage Rates Depends Upon?
- If the economy is doing well, the demand for money is high, and so is the rate of interest as consumers can afford to pay more.
- Canadian bond yields play a huge role in determining fixed mortgage rates. If the bond yields are high, the 5 year fixed mortgage rates are high too. If they are low, the fixed mortgage rates are low as well.
- Your own credit score, income, and down payment/home equity are one of the biggest determinants of what interest rate you are offered.
Which bank offers the best fix rate mortgages?
There is no one particular bank that always offers the best terms and interest rates. Every bank has special offers which can be taken off the market at any time without notice.
Today, it could be TD Bank that offers the best 5-year fixed mortgage rates; tomorrow it could be First National or Marathon mortgages.
What is arguably more important is the terms and conditions of the mortgage loan. Special offers are often accompanied by stiffer terms and heftier penalties.
Usually, the special offers for rates are offered on new purchases with insured mortgages (with less than 20% down payment) and quicker closing dates i.e. 30-45 days.
To get yourself a best mortgage option, interview Mortgage Brokers.
What are the different mortgage terms I can opt for with a fixed rate mortgage?
Fix rate mortgages are available in 1,2,3,5,7, and 10-year terms. Most Canadians opt for 5-year fixed mortgages as they are usually the most heavily discounted loans available.
As a mortgage broker, I never recommend any of my clients to opt-in for 10 year term even if there are special offers.
An open mortgage is a mortgage that can be paid off entirely without the levy of any penalty at all. Even though this mortgage offers a certain level of convenience but the downside is that it comes with higher interest rates. Open mortgages usually carry variable rates and more often than not, end up being short term loans.
A close mortgage, on the other hand, is one that comes with a fixed term. A close mortgage 5-year term tends to be most popular among home buyers because the mortgage rates are heavily discounted however Paying off the close mortgage term loan earlier comes with a penalty.
Home buyers prefer closed mortgages as they come with a low interest rate.
If you are a home buyer looking for the perfect finance option that will offer you convenience, time, and security of payments, then a fixed rate mortgage with a close term should be considered.
6 critical facts to know on every fix rate mortgage
- What is the mortgage term?
- What is the banks posted rate for the mortgage term?
- How are the pre payment penalties calculated?
- Is the provided rate for insured or conventional mortgages?
- Is there a requirement of bonified sale of the property?
- What are the penalties that I have to bear with early pay out
Financial decisions are best made after careful analysis of all the factors at play, which is why you need a mortgage specialist preferably a mortgage broker to assist you with the suitability of the best mortgage rates and line of credit.
We can help you save money and help you make better financial decisions that allow you to pay off your mortgage loan faster or help you leverage your existing equity via refinancing or home equity loans to consolidate debts.
Contact us for more information today.
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