Fixed Rates

Fixed Rate Mortgage

When you secure a mortgage you are entering into an enforceable contract with a lender where you're expected to pay back the funds you borrowed (the principal balance), plus interest based on a chosen rate (fixed rate, variable rate etc.), over an agreed upon period of time.

Generally, you'll have two options to choose from: a fixed rate and a variable rate.

In short, a fixed rate is an interest rate that remains constant through out the term of your mortgage.

If you sign on to a fixed rate at 3%, your fixed rate will remain at 3% until your mortgage matures.

Fixed rates are a common options for borrowers (especially first time home buyers) because a fixed rate means you know what to expect for mortgage payments throughout your mortgage term.

Let's dive into more information about fixed rates below!

Fixed Rates & Bonds

Fixed rates are highly influenced by the Bank of Canada bond yield and bond yield trends.

Sounds complex, and it is.

But I can simplify it for you!

• Bonds are a low-risk personal investment offered by the banks that you can purchase. The government uses this money to pay off debts and make other investments while YOU earn periodic interest on it.
  They’ll pay back your principal at the time of maturity.
• Bonds can be traded on the bond market (similar to the stock market), and depending on demand it can increase or decrease their value.
• Bond prices and their yields are inversely related. If a bond price goes up, the yield goes down and vice-versa.
• Banks rely on bonds because they guarantee a minimum rate of return. In order to make a wise investment (lending to you!), it’s optimal for lenders to ensure what they lend is EQUAL to or MORE beneficial than the bonds they hold.

Pretty much, lenders are ‘staying in business’ by making financial decisions which offer them equal or better returns.

"Okay, I Get It! But How Does This Affect Fixed Rates?"

If the banks notice bond yields are rising, they may attempt to balance out the market by raising fixed rates.

• Bond yields increase
• Mortgages become less appealing for banks to invest in
• Banks raise their fixed rates (to account for what they deem as a less desirable investment in comparison to the bond market)

What Will Fixed Rates Be Like In 5 Years?

As an experienced licensed mortgage broker I would love to give you the answer to this, but unfortunately there is no way of 100% knowing.

Experts consistently analyze the financial market and produce forecasts for rates, but that doesn’t mean there is a guarantee.

Anything can happen!

It’s important to choose your type of interest rate based off your unique borrowing situation and seek advice from a licensed mortgage broker who will guide you in the right direction.

Benefits Of Choosing A Fixed Rate

Fixed rates aren’t ‘one size fits all’.

Everybody’s situation is slightly different from the next, but there are a few general guidelines you can follow that may help with the decision process.

Fixed rates are generally beneficial if:

• Your finances are tight and you can’t afford to experience an unexpected interest rate hike if variable rates rise
• You’re a first-time home buyers who would prefer security instead of risk
• You’d like to know upfront how quickly you’ll be contributing to your home equity (how quickly you can pay off your balance may fluctuate more with a variable rate)
• You have a low loan-to-value ratio (AKA you didn’t need to borrow a lot of money in relation to what the value of your home is)

Considerations of Choosing A Fixed Rate

Not all that shines is gold.

Fixed rates do have considerations!

• The peace of mind offered by a fixed rate often comes at a premium interest rate, potentially increasing your over all cost of borrowing
• If interest rates drop through out the term of your mortgage, your interest rate won't follow. You'll be glued to the fixed interest rate from when you originally signed your mortgage contract (unless you refinance your mortgage)

Finding Out Whether A Fixed Rate Is Right For YOU

Choosing a fixed rate may work brilliantly for you, but we won't know until we fully assess your unique borrowing situation.

I'm Kyle Benzies (trusted licensed mortgage broker); my extensive experience as a licensed mortgage broker means I've helped many clients decide whether choosing a fixed rate is right for their unique needs.

Every borrower has a different lifestyle and goals - I'd love to learn about your mortgage story so that I can confidently recommend if a fixed rate matches your plans.

To discuss fixed rates and other mortgage solutions, give me a no-risk phone call!

***other conditions may apply to anything listed above. The information provided on this page should NOT be implicitly relied upon, and may not be 100% up to date. It's best to contact us for the most current conditions/program offerings for first time buyers***