I like connecting people with their dream homes, but of course a lot of what I do as a real estate agent is educating clients about the market and about their options (that’s why I’m happy to offer a mortgage calculator on my home page). As an Accredited Buyers Representative, I advocate for my clients to help them get their best deals possible. Sometimes, this means making sure they understand the difference between fixed and variable rates – the distinction is important, because it’s one of the first decisions home-buyers have to make. Thankfully, it’s a pretty simple concept to learn.
Like its name suggests, fixed rate mortgages will stay the same each month of your mortgage. These are the most common types of mortgages in Canada, and they offer stability – you know exactly how much you’ll pay each month. For many people, that peace of mind alone is worth it. It is also a generally accepted piece of wisdom that when rates are exceptionally low, it is good to lock into that low rate.
And also like its name suggests, variable rate mortgages will fluctuate over time. It changes according to the Prime rate, which is the rate commercial banks change each other for overnight loans. Since the relationship to the prime rate will remain constant, it’s really the Prime rate that affects how much you’ll pay each month. Historically, variable mortgages cost less over time, but there’s lots more financial uncertainty involved. The overall economic climate will affect how much you pay -if you expect rates to fall from where they are when you’re buying your home, this may be an option you consider.
Ultimately, both fixed rate mortgages and variable ones have their pros and cons, and their supporters and detractors. I’m always happy to help my clients in whatever way possible, and that often involves not only education, but also recommending mortgage professionals who can help them make the right choice. A mortgage calculator is a good tool to help you start thinking about what you can afford, but when it’s time to buy a house, it’s important to know all your many options.