Interest rates vary hugely, even from one day to the next. It’s really important to spend some time locking down the very best rate. One of the easiest ways to do this is to employ a mortgage broker who can act as an entryway to a variety of lending institutions – banks, credit unions and suchlike. A mortgage broker can shop around for you – perfect for helping you find the right rate and mortgage options.
When you’re dealing with interest rates on large amounts of money, even a variance in interest rates as small as an eighth of a percent can make a significant difference to your repayment amount. Typically, the interest is also calculated over long time periods, which makes it even more important to secure the best possible rate.
To complicate things further, there are also different types of interest and mortgage rates. This can make it difficult to know if you’re comparing apples to apples, or apples to oranges.
‘Open’ vs ‘closed’ mortgage types
In addition to the interest type, the mortgage type or term of the mortgage can have a significant impact on your monthly payment figure, as well as the level of interest you’ll pay on the principal. The term, or length of time over which a loan is paid back, can vary from as little as 6 months to as long as 15 to 20 years. Once the end of the term is reached, the mortgage can be renegotiated if the buyer chooses.
There are two common mortgage types – “open” and “closed”. Let’s find out more below…
Payment frequency options are another part of the property ownership puzzle. Property owners can save a significant amount on interest paid over their loan term depending on their cash flow, the amount of each payment and the number of payments per year.
The most common frequency type is the monthly payment option. With a monthly payment, the payment is typically due exactly one month from the day on which your mortgage started. In many cases, however, the actual due date can be changed to a more memorable or convenient date, such as the 1st or 15th of the month.
With a semi-monthly option, the buyer makes two payments per month. Generally, the payments would be due on the 1st and 16th. This option allows you to make your payments in smaller amounts and may help to keep your cash flow consisten
As with the semi-monthly payments, the accelerated bi-weekly option allows you to make smaller but more frequent payments. With this option, you’ll make a payment every other week and this means that twice a year you’ll make three payments instead of just two. This will increase the speed at which you repay your loan.
Your payment frequency option could save you money in interest by enabling you to pay off your mortgage sooner. CompareMyRates.ca mortgage calculator can help you determine the impact of the different options on your interest due.
A few things to consider before a property purchase:
- The amount you can afford to spend
- Renting versus owning
- The size of the mortgage payment in relation to your budget
- Interest rate, and;
- Mortgage options
You’re probably starting to think about the wide variety of mortgage solutions and payment options availableand how they can be used to meet your needs.
CompareMyRates.ca has gathered information for home buyers that’s designed to help you make the right decision for you. Our helpful information tools are provided at no cost to ensure that you’re able to make a suitable, well-balanced decision that you feel comfortable with. Our tools will help you decide on the best options.
What is a Fixed Mortgage Rate?
A fixed rate means that your interest rate remains the same (fixed) for the entire term (duration) of the loan.
Generally, this means the percentage of interest will be a little higher, since the lending institution may be losing money in the future if interest rates rise.
A fixed rate loan provides the buyer with the security of knowing that the cost of their interest will remain the same over time. This means your payment and the amount that goes towards reducing the principal (original loan amount) will remain the same over time as well.
What is a Variable Mortgage Rate?
A variable rate means the percentage of interest that you are repaying will vary based on changes in the interest rate(s) of the overall market.
Typically, fluctuations in your interest rate will not alter your monthly payment. But, they will vary the amount of your monthly payment that goes towards reducing your principal (original loan amount). This means if overall interest rates go down, you’ll actually be paying off your loan more quickly.
On the other hand, if interest rates increase, you’ll be paying off your loan more slowly. Accepting a variable rate does involve a certain amount of risk, but it can work to the buyer’s advantage in the long term.
What is a Protected (Capped) Variable Rate?
A protected variable rate is similar to a variable rate in that the interest rate will vary over time based on market fluctuations. The difference is that a maximum interest rate has been written into the loan contract, meaning that if market interest goes above a set percentage, the buyer only has to pay the agreed-upon maximum. This
What is a Convertible Mortgage Rate?
Buying a home is a huge financial and lifestyle commitment. Whether you’re a buying your first home, upgrading to a larger, more expensive home, purchasing a rental property, or looking for a vacation property, there are many options to consider.
You need to ask yourself if this is the right time for you to buy. Making a careful assessment of your current situation can help you to make that decision, but you also need to consider your community’s current economic circumstances.
What is a Open Mortgage?
An open mortgage means that the loan can be paid back partially, or in full, without incurring any penalties. The mortgage can also be renegotiated if there’s a change in market conditions or your financial situation.
Although an open mortgage provides more options and opportunities for life adjustments, this comes at a cost, as the interest rates for this type of loan tend to be higher. However, for those able to make larger payments, or who plan to sell their home within a short period of time, an open mortgage can be a solid choice.
What is a Closed Mortgage?
The advantage of a closed mortgage is that interest rates tend to be lower, but options are also limited. Typically, a homeowner may make extra payments or larger payments as long as the sum of the payments does not exceed a set amount determined in the loan agreement. Payments exceeding the agreed-upon amount would incur penalties.
A home equity line of credit, or a HELOC, is one of the most convenient ways to borrow money and take advantage of the equity you have built over the years. As opposed to a conventional loan, HELOCs offer other advantages such as: Access to large amounts of money...