In recent financial markets, fixed rate mortgages are coming in at the same number as variable rate mortgages and sometimes even lower. This has resulted in homebuyers becoming eager to take advantage and locking in the fixed mortgage rate. Research done by BMO has shown 57% of all homebuyers find the fixed mortgage rate more attractive, while 30% of these individuals believe the pandemic is playing a role in their opinion.
The survey also states:
- 56% of all buyers are going to lean on their family and/or friends to make the initial down payment on their mortgage.
- From those needing financial assistance,25% are going to be need an additional $10,000-$50,000.
- 11% are going to need more than $100,000 (25% for millennials). Fixed rate mortgages are coming in at the same number as variable rate mortgages and sometimes even lower.
The pandemic has caused a significant number of people to stay home over the past year causing them to re-evaluate their living arrangements. There have also been additional factors at play when it comes to the mounting home prices, which have ensured housing is still affordable relatively speaking.
Should You Consider a Fixed-Rate Over a Variable-Rate Mortgage?
Borrowers who do not have a high-risk tolerance and are concerned about where things will go from here should speak with a mortgage specialist and consider switching to a fixed-rate mortgage. That way, they will be locked into a specific mortgage with a fixed rate that will not change throughout the term, regardless of what the interest rate does in the coming years. Variable-rate mortgages can be converted to fixed-rate mortgages during the term of the loan. However, locking in comes at a cost. Some lenders may require borrowers who want to lock in a rate to sign up for a five-year term, regardless of how long their current mortgage is.
What About New Homebuyers?
If you do not already have a mortgage and are looking to buy, you should think about getting pre-approved for a 5-year mortgage. Pre-approval ensures that today’s fixed interest rates will be available for up to the next 120 days. Mortgage rules change in response to economic conditions, some changes are minor, while others are significant enough to affect how much of a loan you can afford and get approved for.
Interest rates do not remain constant indefinitely. They will change at some point, and most likely in an upward direction given the low-interest-rate environment we have been in for the last few years. Based on this information, Canadian borrowers should evaluate their mortgages and finances to ensure they are prepared to handle minor increases in monthly payments in the long run because of inevitable interest rate hikes.
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