Purchasing a home in itself can be stressful enough. Being bombarded with unfamiliar jargon can add to that stress. Fortunately for you, we've created a helpful cheat sheet that will make you a mortgage expert in no time!
Your mortgage rate will fluctuate with any changes with the current prime interest rate. In essence, if the prime rate declines, more of your payment will go towards paying off your principal. However, if the prime rate increases, more of your payment will go towards covering interest costs.
As a whole, you may end up paying a lower average rate in comparison to a fixed-rate mortgage. If interest rates are cliombing, you can switch over to a fixed-rate mortgage.
Advantages of a Variable-Rate Mortgage
- Due to the fluctuations, any decreases in the prime rate will work in your favor.
- Generally variable-rates are lower than fixed-rates as a way to compensate for the risk factor.
Disadvantages of a Variable-Rate Mortgage
- More risk involved due to the lack of security & stability.
- Financial uncertainty - Significant increases in prime rate will increase your interest payable which will consequently increase your financial burden.
By the end of this 4-part series, you'll be well informed on the various elements involved in mortgage plans and you'll be able to decide on what plan is best suited for your needs.