If you are thinking about buying a home, you have likely heard of fixed-rate mortgages. There are many fixed-rate mortgage types available in Canada, including balloon, convertible, bi-weekly, interest-only, and 7, 15, 30, and 40-year mortgages.

Variable mortgages have interest rates that fluctuate according to industry-wide lending practices and interest rates. As for a fixed-rate mortgage, the interest rate you pay every month is determined at the start of the mortgage and remains stable throughout the mortgage’s term. Here are going to explore fixed-rate mortgages in Canada, and what factors will determine your interest payments if you get a fixed-rate mortgage. 

What are Fixed-Rate Mortgages and How Do They Work?

With a fixed-rate mortgage, your monthly payments will remain the same throughout the life of your loan. It may also be possible to refinance your mortgage to change your interest rate or switch from a variable-rate mortgage to a fixed-rate one or vice versa.

During the refinancing process, you may be able to negotiate the terms of your loan during the refinancing process and get more favourable terms. 

A large down payment or a good credit score will provide you with more leverage to secure more preferable terms on your next loan.

What Factors Determine Your Interest Rate for a Fixed-Rate Mortgage?

Your credit score has a big impact. Generally speaking, a higher credit score will be rewarded with lower interest rates. 

You may not qualify if your credit score is very low. You should also take the time to review your credit report to look for any errors or discrepancies that may negatively impact your credit score.

Where your home is also located matters, the province or state you live in and whether you live in a rural or urban area may impact the interest you need to pay every month.

Moreover, the amount of the loan and the price of your home may also influence interest rates. Mortgage insurance and closing costs may be added to the mortgage amount you need to pay in some instances.

Loans atypically large or small may necessitate that you pay elevated interest rates. Try and use real estate websites to assess the prices of properties in the area you are interested in moving to.

Even your down payment amount impacts how much you will need to pay each month. Generally speaking, the higher the down payment, the lower your interest rate will be, as you will be seen as a lower risk.

Putting down a down payment of at least 20% will usually suffice. If you cannot put down a down payment of 20% or more, your lender may require that you obtain private mortgage insurance in order to get approved.

The term of your loan will also affect your monthly rate. Generally speaking, shorter terms will lower overall costs and interest payments. However, the monthly payments will be higher.

Moreover, the interest-rate type also needs to be considered. The initial interest rate may be lower than a fixed-rate loan with an adjustable-rate mortgage. However, you run the risk of the rate rising in the future, whereas a fixed rate is secured and generally considered safer.

The loan type is also of great importance. There are many different loan types to choose from, including, but not limited to, mortgages, second mortgages, reverse mortgages, debt consolidation loans, home equity loans, secured or unsecured loans, and mortgage refinancing. 

The terms, conditions, and rates will vary from lender to lender, so you need to compare and contrast the different loan products to find one that caters to your unique financial situation. 

If you are unsure if a fixed-rate mortgage interest rate is right for you, please speak to a  financial professional to explore your financial options.

What are the Advantages of a Fixed-Rate Mortgage?

A fixed-rate mortgage will protect you from sudden and unexpected increases in the overnight rate. By knowing the exact amount you need to pay every month, you can budget accordingly and enjoy peace of mind.

Being Smart Financially

Many factors influence mortgage rates, including housing market conditions, inflation, the bond market, the Federal Reserve monetary policy, and the economic growth rate.

For many homeowners, the instability of the market makes them nervous. Many will opt for a fixed-rate mortgage to mitigate most of the risk associated with protean market conditions.

An increase in the other index or prime rate will not influence how much you pay every month. If you can secure a low-interest rate, then we would advise that you lock in the said rate for the entirety of your mortgage loan to save more money down the line.