Which is better: a fixed-rate mortgage or a variable-rate mortgage? If rates are high, it is recommended that a borrower use a variable rate mortgage or shorter terms (1 to 3 yrs). When rates are low, lock in for extended periods (4 to 10 yr terms). Decision is based on individual lenders’ risk tolerances and long/short term plans for the property. How does credit history impact the eligibility for a fixed-rate mortgage? Credit history affects borrowers ability to qualify for all mortgages. The poorer the credit history the more likely the borrower will be using a high risk lender who charges higher rates and fees How is the interest rate determined for a fixed-rate mortgage? Interest rates are set by each lender and it is usually tied to BOC Bond rates
Fixed Rate Mortgages Ontario
It is becoming increasingly tougher to follow mortgage rates in the midst of economic fluctuations, and situations that usually lead to reduced mortgage rates may not necessarily yield the expected outcome. Fixed-term mortgages in Toronto are designed to protect you from the risk of a sudden increase of interest rates associated with variable (adjustable) rate mortgages. Your interest rate and payment amount is constant for the term of your mortgage, which may be 1, 5, 10, 15, or 25 years. Choosing a longer repayment term may give you added security since the interest rate and payments will remain the same for the entire duration of your loan. In some cases, the lender may offer flexible terms and pay down options for fixed-rate mortgages. Finding such a flexible option requires you to know the details of every mortgage product available, and that is where our Northwood Mortgage brokers can offer their expertise. Our mortgage experts can help you identify the most appropriate fixed-term mortgage in Toronto for you.
Prepayment charge for fixed-rate closed term mortgages
The charges for prepaying the entire principal amount of your mortgage before the end of the term can be calculated as either the sum of three months interest or the Interest Rate Differential, with lenders typically choosing the greater amount. The prepayment charge is calculated as follows: Step 1: Calculation of the amounts that equal both (a) and (b) below:
- The interest costs for three months at the mortgage rate on the amount you intend to pre-pay;
- The difference in interest rate between: the present value of all interest you would have otherwise paid between the prepayment date and maturity date on the amount you intend to prepay at the mortgage interest rate and the present value of all interest that would otherwise be paid between the prepayment date and maturity date on the amount you want to prepay at the current interest rate (minus any rate discount received on your current mortgage).
The present value mentioned above is calculated depending on the remaining term to the maturity of your mortgage in months and the number of monthly payments remaining in your fixed term. The present value in option (b) is calculated by adjusting the principal and interest payments because they would have varied when using the current interest rate (CIR). The CIR is the existing posted interest rate offered by the lender for a new fixed-term mortgage with a term that is closest to the remaining term of the existing mortgage. The current interest rate is usually discounted by the rate you received on your current mortgage. Step 2: Determination of the higher amount between options (a) and (b): The prepayment charge for paying out a fraction or the whole principal amount of your fixed term mortgage early is the greater of the two amounts. But if you prepay some or the whole principal amount of a fixed-term mortgage that is greater than five years, after the fifth year, the prepayment charge is only from option (a).
Contact Northwood Mortgage Experts Today
If you want to know exactly what your mortgage payment and interest rate will be for the entire term of your mortgage, then a fixed-term mortgage may be best for you. Contact our mortgage experts for the best rates in Toronto.
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