What is the Difference Between a Fixed Mortgage Rate and a Variable Mortgage Rate?

When you contract a mortgage, the loan comes with interests, of course. Unlike credit cards, which are almost all offering the same interest rates, there is no single rate that applies to mortgage loans. That is all the more true since you can opt for a fixed or variable mortgage rate, which will highly impact on your monthly payments, depending on what you choose to mortgage your house.

The Fixed Rate

Just like its name indicates it, the fixed mortgage rate will not change during the chosen term. It means the monthly payments will always have the same value, even if the Bank of Canada’s key interest rate changes during that time. Whether it is a loan from a traditional bank, the fixed rate is established according to Canada’s obligations, of which the performance can be affected by various economic factors, such as unemployment or exports.

Thus, a fixed rate simplifies the medium-term budget planning. It is an excellent option for young households and first buyers, since most of them can hardly accommodate budget fluctuations that a variable rate could cause, and they often to borrow the maximum they can.

Variable Mortgage Rate

Concerning the variable mortgage rate, its value is also set according to the economic situation, but relates more to the Bank of Canada’s key interest rate, or preferred rate, with a mark-up of a few percentages points, depending on the financial institution. This way, if the key interest rate fluctuates, it will be the same for the inter
In the moment, and since a few years, variable interest rates have reached historically low levels, lower than fixed rates, and experts continue to announce a rise. Yet, from month to month, the economical context is not favorable enough. Hence, the variable rate seems much more interesting than fixed rate, since it allows to save a lot, at least currently.

Nonetheless, the increase of the key interest rate would be enough to increase your monthly payments significantly. So you must plan a possible rise of your mortgage payments in your budget.

Need a Refinancing?

If a hardship should happen or the variable rate rise became too significant, so you would have difficulties to do your mortgage payments, it would be possible to obtain a new financing of your debt depending on your house’s value. By contracting a private mortgage up to 75% of your property’s value with Clic Hypothèque, you are able to rectify the situation within a few months, and go back with a traditional bank afterwards.

We are an alternative financing society, offering personalized private mortgage financing solutions to help our clients to keep their equity when a difficult and unexpected situation occurs. We consider every request quickly and with respect.

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