Tag Archives: mortgage

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Fixed or variable rate: a question of monthly mortgage payments

Once you’ve settled the question of open or closed term, you will inevitably have to decide between a fixed and variable rate. Which is best for your situation?

When the time comes to choose your mortgage term, there are a number of elements to take into account, including your financial means, your risk tolerance and the economic situation. To demystify it all and equip you to make the best possible decision, here’s some information that will help you make an informed choice about your mortgage type.

Fixed- versus variable-rate: which is lower?

As a general rule, variable-rate mortgages tend to be lower than fixed-rates. To understand the difference, you need to look at how these rates are calculated. Essentially, a financial institution’s variable interest rate corresponds to its preferential rate. This is established based on the Bank of Canada’s overnight rate. Add a certain percentage to this, and you have the variable rate.

As with fixed-rate mortgages, the monthly payment amount usually stays the same, but the ratio of interest to principal is subject to market fluctuations. There are also certain types of variable-rate mortgages where the monthly payment varies based on the fluctuation of market interest rates. With a fixed-rate mortgage on the other hand, you are guaranteed to always have the same amount dedicated to repaying your principal, regardless of what the market does. Continue reading

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How to Absorb the Interest Rate Hike

It was bound to happen one day. The Bank of Canada decided to raise its interest rates on July 12th for the first time in years. Every large bank followed suit the next day. It is now time to revise your budget accordingly.

This first hike does not mean there will be a second one on September 6th of this year, and that the interest rates will keep rising afterward. But, better be safe than sorry, especially given the fact that the total Canadian household debt has reached a record high.

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The Bank of Canada is anticipating an increase in the inflation rate. CIBC Bank economists, who issued the “Canadian Inflation: What’s Gone Wrong?” report, also believe the inflation rate will hike soon. Mortgage holders living on a tight budget should prepare accordingly. Continue reading

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Want to be mortgage-free faster?

5 tips for making a dent in your debt.

According to a BMO 2015 home-buying report, the average Canadian expects to pay off their mortgage by age 59 — but 31 per cent think they’ll still have a mortgage by their 65th birthday. Looking to ditch your debt quicker — without over-extending your budget? It may save you hundreds (if not thousands) in the long run.
The biggest benefit is saving money on interest charges. The longer it takes to pay down your mortgage, the more you’ll pay in interest. The BMO report found that, on average, Canadians believe they’ll pay approximately $60,000 in interest on their mortgage (and this number hits $100,000 for B.C. residents).

First-time homebuyer tip: Curious how mortgage payments work? It’s all about the amount of money you’re borrowing and the length of the loan. Based on these factors, your lender will calculate your payment schedule. Some of your payment will go toward interest (the amount paid on the amount you borrowed), and some will go toward your principal (the amount initially borrowed under the mortgage). You may pay more toward interest than principal in the first few years of your loan, and more toward principal in the later years. Calculate your potential payment schedule with our nifty mortgage calculator.

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