Going for a mortgage loan is an all important decision. Appropriate planning and lot of consideration is required for sure. When it comes to choosing the type of mortgage loan, there are basically three choices available in front of the borrower. As a borrower, you can either go with a fixed rate mortgage loan, a variable/adjustable rate mortgage loan or both.
When the prime/variable interest rate within the market is on the higher side (4.00%) and there are likely chances that it will keep on increasing choosing a fixed rate mortgage can be considered as a wise decision. By locking in your mortgage to a fixed rate your mortgage payment remains the same. If interest rates do increase or decline your fixed rate remains the same so once you are locked in you cannot break the loan without paying a large penalty cost.
The variable rate or adjustable rate mortgage is a fluctuating rate. As the Bank of Canada raise or decrease rates your mortgage rate will do the same. Overall the variable rate is a more aggressive option and in times of low and stagnant interest rates, can be considered a wise move.
Some mortgage lenders offer a fixed and variable rate mortgage which allows the client to lock up a portion of their mortgage with the rest remaining in a variable. Choosing fixed or variable mortgage loan is an emotional and gut instinct decision. When interest rates are low both product offer benefits however the variable rate offers the most. Always speak with a mortgage broker to get the best advice. A point to remember is that most lenders will allow you to break a variable rate mortgage with only three months interest penalty. A fixed rate mortgage can be very expensive to get out off.