Fixed-Rate Mortgage in Canada: A Brief Overview

by | Jun 17, 2022

Mortgages are the most popular way to buy a home in Mississauga. Mortgages are loans used to pay for the purchase of a home. And you know what people are generally deterred by the idea of a fixed-rate mortgage, one of the types of mortgages, simply because they’re not sure how it works. Well, let us enlighten you: A fixed-rate mortgage has a fixed interest rate throughout the life of your mortgage.

A mortgage is a major financial commitment that should be carefully considered. A fixed-rate mortgage in Canada has many benefits for those who are looking to buy a property and start their own business. A fixed-rate mortgage is one such loan that can help provide a stable rate of return and help you save on interest payments in the long run. In this case, it is important to learn how does fixed-rate mortgage works? Why is it important? Let’s discuss these questions now, shall we?

1. What is a Fixed-Rate Mortgage?

A fixed-rate mortgage is a type of loan that offers a set interest rate for the duration of the loan. The principal and interest payments on this type of mortgage remain constant throughout the life of the loan, as a result allowing you to budget with certainty.

For example, if you receive a five-year fixed-rate mortgage at 4.5% today, you will pay 4.5% on your principal and interest payments every month until the end of five years when your loan expires (unless you renew).

mortgage rates

2. Benefits of Fixed-Rate Mortgage:

There are several benefits to choosing a fixed-rate mortgage over other mortgages. Some include:

1. Lower risk

As mentioned above, with a fixed-rate mortgage, there is little risk of increased interest rates. So, it means that a fixed-rate mortgage protects the borrower from rising interest rates, and the predictability of payments makes budgeting and financial forecasting smoother.

2. Flexibility

A fixed-rate mortgage allows you to budget more easily because you know exactly how much money will be coming out of your account each month for at least the duration of your term. So this gives you peace of mind that you won’t have any surprises due to an unexpected increase in costs or changes in income.

“Our primary objective in every mortgage transaction should be to borrow in a way that reduces debt, improves financial stability, and helps us get debt free in as short a time as possible!” -Dale Vermillion

3. Avoids debt problems

Fixed-rate mortgages allow you to budget and plan for the long term. So, knowing how much your payment will be each month makes it easier to plan your finances and save for other expenses.

For example, You can use the extra money from not having to pay higher interest rates on credit cards or loans, which can help you avoid debt problems later in life.

3. Difference between Fixed-Rate Mortgage and Variable-Rate Mortgage

Knowing the difference between a fixed and variable rate mortgage is essential because it will affect your monthly payment and the overall cost of borrowing. So here are a few differences between these two mortgages:

Fixed-Rate Mortgage Variable-Rate Mortgage
1. Interest Rates The interest rate stays the same over the entire term of your loan. The interest rate can change at any time during the loan term.
2. Monthly Payments Remain the same over time, regardless of fluctuations in interest rates or other economic factors. Changes in interest rates affect payments dramatically depending on where rates are at when they go up or down.
3. Origination fees Lower origination fees Higher origination fees

 

If you want to get more information about the difference between Fixed-rate mortgage and Variable-rate mortgage, please see our blog Fixed or Variable Mortgage Rate: What’s best for you?

4. Current Mortgage Rates

According to MoneyWise’s latest survey on Canada’s mortgage lenders, current mortgage rates for Monday, June 20, 2022 are:

  • 4.93% for a 3-year fixed mortgage rate
  • 5.12% for a 5-year fixed mortgage rate
  • 4.22% for a 5-year variable mortgage rate

If you want to know more about the current mortgage rates in Mississauga, please click here, 5-Year Fixed Mortgage Rates

5. What is the Fixed Rate Mortgage Penalty Interest Rate?

The fixed-rate mortgage penalty interest rate is the amount of interest you pay if you break the contract early. The penalty interest rate is in addition to the regular mortgage rate and is applied for the length of time that you’re in your agreement. The penalty interest rate is typically between 0.5% and 2% above the regular mortgage rate, but it can vary depending on which lender you use and what type of mortgage.

For example: Let’s say you took out a five-year fixed-rate mortgage at 4%. Your monthly payments would be $1,200 per month (principal + interest). If you broke this contract before the end of five years, you’d have to pay an additional 3% on top of your monthly payments for as long as you’re in default.

mortgage rates

6. What Affects Your Mortgage Rate in Canada?

The mortgage rate you pay is determined by the loan type and the lender that provides it. And several factors can influence your mortgage rate, the most important ones include:

1. Inflation

 Rates in Canada can fluctuate depending on a number of factors such as inflation and the Bank of Canada’s decision. During periods of high inflation, mortgage rates tend to rise since lenders need to make higher profits to cover their increased expenses.

2. Your Credit Score

Your credit score is one of the most important factors lenders consider when you apply for a mortgage. When it comes to mortgages in Canada, the higher your credit score, the lower your interest rates and better terms you’ll qualify for.

3. Down Payment

The size of the down payment, or how much you have to contribute towards the purchase, can have a huge impact on your mortgage rate. It’s actually pretty simple. Lower interest rates save you money. A lower down-payment means a lower interest rate. So the more you have to put down on a home purchase, the better!

The Bottom Line!

Fixed-rate mortgages in Mississauga are becoming more and more popular. And also over the last few years, interest in fixed-rate mortgages has shot up considerably. So, if you’re interested in purchasing a home or refinancing your current home loan, you may ask yourself if fixed-rate mortgages suit you. If you are interested in learning more about fixed-rate mortgages or any other type of mortgage, you can get expert advice from our counselor at Yogi & Associates.