Fixed Rate Mortgage
A fixed rate mortgage (FRM), locks in your mortgage rate for the term of your mortgage contract unlike a variable rate mortgage (VRM). If rates go up your mortgage rate is protected so your neither your rate or monthly payment will be increased. If rates do go down you could explore breaking your mortgage and paying the penalty if ther are potential savings. A sunlite Mortgage agent could assist you in calculating any potential savings.
A fixed rate mortgage is the better choice for if you are looking for interest rate stability. Fixed rate mortgage term range from 1 year to 10 years and like the rate, the payment stays the same until the mortgage maturity date.
Your fixed rate mortgage last for the term you accepted from your mortgage lender. The post popular fixed rate mortgage is the 5 year term.
At your mortgage maturity date you can either renew your mortgage with your current mortgage lender and accept the mortgage renewal rate they offer you, or you can switch your mortgage to a lender who is offering you an option to pay down your mortgage faster.
About 120 days before your mortgage maturity you should start comparing mortgage rates to see if your mortgage renewal offer is the best rate. Your offer will be will not be withdrawn if you apply for a mortgage at another lender and isn’t approved. Variable Rate Mortgage
A Variable Rate Mortgage (VRM) can be open or closed and will fluctuate with the Prime Rate of your mortgage lender throughout the term of the mortgage. Your mortgage pegular mortgage payment will remain the same but the payment to your mortgage principal will change.
When lender’s prime lending rate increases, your mortgage rate will increase accordingly and more of your regular payment will go towards paying interest for the mortgage and less toward paying down the mortgage.
When the Prime rate decreases, your interest rate also decreases and more of your regular payments goes towards paying off your mortgage faster.
If having a predictable budget is your goal while paying off your mortgage, then it's better to have a fixed rate mortgage instead of a variable rate mortgage. If you have a variable rate mortgage and interest rates are increasing, you could always switch to a fixed rate mortgage.
Currently the qualification rate for a fixed rate high ratio mortgage is the 5 year benchmark rate of 5.34% and for a conventional mortgage is the contract rate plus 2% or the benchmark rate (whichever is higher. The qualification rate for a variable rate mortgage is the mortgage lenders prime rate plus 2%.
An open variable rate mortgage has a higher interest rate and the borrower is allowed to pay off the mortgage without a penalty. Closed variable rate mortgages usually come with a term of 3 or 5 years and carry a prepayment penalty if you pay off or refinance the mortgage before maturity.