If you’ve begun the process of purchasing your first home, then you’re likely familiar with the concept of mortgages. However, it takes a bit of research to gain some clarity on the intricacies of the loaning process. With the following overview, you’ll learn about the differences between the two types of mortgages available to you (fixed rate and adjustable) and how they differ. Use this as a launching pad for your own independent research to help determine which type is best for you.
Interest Rate Comparisons
Fixed rate and adjustable rate mortgages differ primarily in the way monthly payments are structured.
With a fixed-rate mortgage, homeowners are locked into a monthly interest rate for the full term of the loan—that is, unless you miss a payment or choose to refinance.
Adjustable rate mortgages, on the other hand, can change each and every month, and are priced in accordance with prime interest rate, which is set by the Bank of Canada.
Pros and Cons
Depending on your financial situation, both mortgage types can have advantages and disadvantages. For example, those with fix rate mortgages will remain unaffected by negative fluctuations of the interest rate index and can make long-term budgeting plans based on the regularity of their payments. Those with adjustable rate mortgages, however, can capitalize on lower monthly interest rates without paying to refinance their home. Furthermore, adjustable rate mortgages tend to feature reduced rates during the introductory period, making them ideal for short-term homeownership.
For more information about the differences between fixed rate and adjustable rate mortgages, contact Axiom Mortgage Solutions. Our experts can answer any questions you have regarding this or any other home loan related topic.
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