Fixed-Rate Mortgages: an Attractive Option for First-Time Home Buyers

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GTA REAL ESTATE – For someone planning on entering the Toronto area’s real estate market for the first time, choosing a mortgage can be a tough decision because of the various options available. You can pick and choose your amortization period, the amount you’re willing (or able) to put into your down payment, and – perhaps most importantly – whether you’d like to have a fixed-rate mortgage or a variable rate mortgage.

According to a BMO’s First-Time Home Buyer’s Report released April 9, first-time Canadian home buyers are twice as likely to choose a fixed-rate mortgage over a variable rate. In fact, many (39 per cent) would still prefer a fixed-rate mortgage even if they expect interest rates to stay the same or decrease over the next five years.

The Difference between Variable and Fixed-Rate Mortgages

We’re not expert financial advisors – it’s absolutely crucial for home buyers to get help from one before deciding on a mortgage option – but here’s a simple breakdown of what these terms mean:

  • A fixed-rate mortgage locks you into a certain mortgage interest rate for a set time period (called the “Term”), which you are able to choose with the help of your mortgage advisor. It is very common for first-time buyers to select a five-year fixed rate mortgage. During the course of your Term, the interest rate on your mortgage will not change regardless of what happens in the market, or adjustments made to mortgage rates by banks or by the Bank of Canada, whether for better or worse.
  • If you choose a variable rate mortgage, the interest rate applied to your mortgage will fluctuate as the mortgage provider makes changes to its prime interest rate – the rate offered to borrowers with the highest credit ratings. Many mortgage providers offer the option of making such a mortgage convertible – allowing the borrower the option of switching over to a fixed rate if they so choose.

Five-year fixed mortgage rate may be a great option for many first-time home buyers, but it’s smart to think carefully when considering this type of mortgage. The federal government has taken steps over the past year to keep fixed mortgage rates from falling further.

Any home buyer should keep in mind that selecting a mortgage is a very personal decision, and should be in line specifically with your own financial situation. Sitting down with a GTA-based financial advisor or Accredited Mortgage Professional (AMP), who can understand your needs and has up-to-date information on rates, is the best way to get started on figuring out a mortgage that works for you.

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