A fixed rate mortgage is a fully amortizing mortgage loan where the interest rate on the note remains the same through the term of the loan. As a result, payment amounts and the duration of the loan are fixed and the person who is responsible for paying back the loan benefits from a consistent, single payment and the stuff to plan a budget based on this fixed cost.
The advantage to locking in your interest rate for a fixed term is security, meaning there is no risk that your interest rate will go up for a number of years and hence your mortgage payment will stay the same. If you are someone who likes to stick to a strict budget or is concerned with changes in your payment then a fixed rate term is the best option for you.
A fixed rate mortgage can be locked in for terms of 6 months up to 25 years and amortized up to 30 years. In Canada, the most popular term is a 5 year fixed rate and it is rare to lock in for more than 10 years. Typically the banks will offer their best rate discounts and special rate offers in the 3-5 year range as they like to keep clients business for as long as possible.
Fixed mortgages are closed mortgages but that does not mean you are completely restricted. Most fixed rate mortgages will allow you to pay 10-25% extra each year without penalty so that you can significantly pay down your mortgage if you wish. They are also fully portable meaning you can transfer your mortgage from one property to another in case you decide to move during the term.
There are also “no frill” products on the market that you will find deep discounted rates with less freedom to pay extra. These products typically do not allow you to refinance without selling the property and limit your extra payments to 0-10% per year. You need to be careful when comparing products and rates to ensure you know all your options.
If you have any questions about which mortgage product or length of term is right for you, please contact one of our mortgage brokers to discuss your situation. Click APPLY NOW below to get started!