Toronto, Ontario (PRWEB) July 08, 2013
When homebuyers are shopping around for a mortgage, they have to decide on whether to get a variable rate or a fixed rate mortgage. Both options have advantages, but it depends on ones financial situation says KANETIX.
The variable mortgage will fluctuate with the prime rate, which is also referred to as the market interest rate. This means that mortgage payments will change as the prime rate fluctuates or the interest on the payment will vary. The advantage of a variable mortgage rate is that over time, these rates have proven to be less expensive.
For many home buyers, a fixed mortgage is an appealing option because the payment will never change for the duration of the mortgage term. This eases the stress of paying bills, as homeowners will always know what is due from month to month.
When it comes to fixed and variable rate mortgages, there is a clear winner in the race to be the more popular option. About 60 per cent of the total mortgages in Canada are fixed rates, while the remaining percentages are variable rates. Usually, mortgage holders who have some knowledge of the economy and who are more comfortable with the fluctuations of the market opt for variable rates, while those who prefer the stability of knowing how much they will be paying prefer fixed rates.
In most cases, the rates of fixed mortgages will follow the patterns of the Canada Bond Yields, as well as a spread, where the bond yields can be impacted by economic factors including inflation, export and unemployment.
While variable mortgage rates are impacted by the same economic factors, they are also driven by changes or movements with the current prime lending rate. This is the rate that is provided by banks to what they consider their top, credit-worthy patrons. In most cases, a variable mortgage rate will be written as prime plus or minus the percentage of premium or discount. For example, a common variable rate is quoted as prime -0.8 per cent. Therefore, when the prime rate is situated at five per cent, the mortgage holder will pay 4.2 per cent in interest, or 5 per cent minus 0.8 per cent.
The prime rate is dependent on the state of the current economy, which is determined by the economic factors listed earlier, like inflation and unemployment. The combinations of manufacturing, export and unemployment all determine the actual inflation rate. When the inflation rate is high, then the Bank of Canada will, of course, make increases to the prime rate in order to make borrowing money much more expensive. When the inflation is lower, the prime rate will be decreased in order to stimulate and improve the economy as well the appeal for borrowing.
Choosing a mortgage rate is ultimately based on a homeowners specific financial needs. If a homeowner likes the stability of knowing their mortgage payments from month to month, a fixed rate mortgage is the right choice. If a homeowner likes a bit of flexibility, they may want to consider the benefits of a variable rate mortgage, as they have been proven to save money when considered long-term.
About Kanetix®
Launched in October 1999, KANETIX was Canada’s first online insurance marketplace and today provides over a million quotes per year to consumers looking for insurance, as well as comparisons for mortgage rates and credit cards.
The KANETIX comparison service is a one-stop shopping environment for consumers. Each day, thousands visit the KANETIX website to comparison shop their various financial needs. Shoppers choose what they want to compare, obtain a quotation and complete an online application or, with the help of KANETIX connect with the provider to purchase or apply for the product over the phone.
Through its Software as a Service team, KANETIX is also the leading provider of online insurance quotation technology, developing online quotation systems, mobile solutions, actuarial tools and websites for many of Canada’s largest insurance brands.
For more information, visit KANETIX.ca or contact:
Natasha Carr
416.599.9779 ext. 343
publicrelations(at)kanetix(dot)ca
Kanetix Ltd.
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