A Guide to Mortgages and Different Types of Mortgage Rates
Getting a mortgage can be difficult to understand and manage, especially for beginners. However, understanding all the different types of mortgages and mortgage rates will make the process much easier. You can choose the best mortgage for your needs and your budget first. And then you can narrow your final choices based on the loan that will work best for you.
Variable vs. Fixed Mortgage Rates
It is important to know the difference between the two different plans before reading further. With a staggering rate of 66% of total mortgage in the country – fixed mortgage rates are more commonly used in Canada. The protection offered by a fixed rate mortgage makes it popular. When you take this type of loan, fluctuation and instabilities in interest rates aren’t a major concern for you.
Variable mortgage rates as compared to fixed rates are more dependent on market behavior creating certain changes in your payment. The main difference is of the stability in the payments that you have to make.
About 3-Year Fixed Mortgage Rates
The plan basically consists of an even interest rate over a three-year term period. Don’t be confused. A 3-year fixed mortgage does no mean that you repay the loan in 3 years. The 3-year amortization period refers to the length of time where your loan will enjoy a fixed interest rate. There are basically two amortization periods with this type of loan. The short (3-year) and long terms. Each has a different set of procedures associated with them.
However, it is essential for you to know that the three-year term basically defines the period where you are loyal to all the contract related requirements and the finalized mortgage rates with your lender.
About 5-Year Fixed Mortgage Rates
Again, the 5-year mortgage term with this home loan product is not be confused with the amortization period. The assigned five-year term basically corresponds to the time period in which you are able to secure the latest mortgage rates.
The term also involves a constant renewal process after the end of each year. During this time you will have to renovate the mortgage value at the rate which is given out at the end of one term. An example could be in a case where there is a 5 year fixed mortgage plan. This will include a hefty 25 year amortization period.
To further understand the mechanics of the scheme, in case of a fixed mortgage rate, the percentage is also fixed for the length of the whole term. To deal with variable or fluctuating mortgage rates, the rate is continuously changed accordingly to the variations made in the prime rate, commonly known as the market interest rate.
An example of the fixed mortgage rate is that if there is a term of five years at an interest rate of 4%, then you will have to pay a 4% rate of interest until the end of the term.
The 5-year fixed mortgage scheme has some important characteristics that you should definitely know about. One of them states that all financial borrowers in the 5-year scheme should be able to comply with all sets of regulations. The condition also applies to short-term plans with comparatively lower interest rates.
Such a feature brings a lot to the table as it reduces the liabilities involved for lenders. The feature also ensures some much-needed breathing space for the borrowers for a smooth process.
About 3-Year Variable Mortgage Rates
Apart from fixed mortgage plans, there are some interesting variable mortgage plans as well depending on your preferences. Variable mortgage rates are basically lent to most customers as classified by the banks which are providing the amount. Also known as adjustable mortgage rates, these rates are similar to prime lending rates and are considered as a discount to prime.
An example of this type of home loan product could be with a case where a prime lending rate is 3%. The variable mortgage rate is set at 0.5% to prime. This indicates that the effective rate will be 3.5%.
In this particular scheme, the interest rates will be added accordingly over the time period of three years. The time period basically requires you to be dutiful to the regulations involved.
A difference between the fixed and variable term is that the variable rates are lower than the fixed rate as you will not be able to purchase the required security that you need in case of interest rate instability.
About 5-Year Variable Mortgage Rates
It is common knowledge that the variable mortgage rate continuously keeps on changing depending on the market interest rate. The plan is basically considered as a prime percentage addition or deduction. An example can be of a prime rate of 5%, which can be affected due to percentage deduction of 0.8%, with a 4.2% interest rate.
The 5-year time period basically consists of the length of time where you have to pay the variable mortgage rate plus mortgage payments in some cases.
The procedure can be further explained by the example that states that in case of a decrease in interest rates, a higher amount of mortgage is to be paid to reduce the principal amount. The amortization period will be reduced if the interest rate is decreased, which is important to know.
Next Step: Compare All Rates
The next step you should do is compare the best mortgage rates you can find with a comparison tool like CompareMyRates.ca. This will give you an understanding of what banks have to offer – their deals, rates, terms etc. With a tool like this, you can actually find the best mortgage rate for you. It saves you from having to go through every bank’s website.
There are a lot of factors that can contribute to the preference of each plan. It is better if you choose a scheme which offers both security and stability in your payments for your ease.
