Best Fixed-Rate Mortgages In Canada

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Best Fixed-Rate Mortgages In Canada

Best fixed-rate mortgages from top mortgage lenders in Canada. Rates are updated daily. Select a mortgage to view more details.

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What Is A Fixed-Rate Mortgage?

A fixed-rate mortgage has an interest rate that is fixed throughout the loan term. Thus, your monthly payment will remain the same. 

A mortgage term is the length of your mortgage contract, usually six months to 10 years.

You can renew or refinance your mortgage at another fixed rate or switch to a variable-rate mortgage product with the same lender or a new lender.

A fixed-rate mortgage is a loan with a fixed payment amount throughout the term.

A fixed-rate mortgage has rates that do not change for the entire term.

The most popular type in Canada is the 5-year fixed-rate mortgage. This means your mortgage will remain the same throughout the five-year term, except if you break the contract by selling the house, refinancing the mortgage, or renewing the mortgage before the end.

Other popular fixed-rate terms are a 1-year fixed-rate mortgage, a 2-year fixed-rate mortgage, a 3-year fixed-rate mortgage, and a 4-year fixed-rate mortgage.

Mortgage Payments For Fixed-Rate Mortgage

When you make your monthly mortgage payments, part of the payment goes towards paying down your mortgage loan, and the other part pays the interest. 

You know how much of the mortgage loan you will pay by the end of the mortgage term. 

This payment schedule will be outlined in your amortization report. This report will show how your monthly payments will be split between paying down the loan and paying off the interest.

Fixed-Rate Mortgage-Basic Characteristics

The central characteristic of this kind of loan is that it provides ultimate budgeting security to homeowners.

Scheduled payments for a fixed-rate mortgage are reliable because they are affected by market rate changes. This can serve as a guide to help you structure your budget for the coming months. 

Furthermore, another exciting thing about fixed-rate mortgages is that they differ little from lender to lender. Hence, comparing rates from different lenders before proceeding with a mortgage transaction is essential. Rate shopping helps ensure you don’t miss out on the lowest mortgage rate in the market. 

There is a significant chance that once you have decided on the loan amount you want to borrow, you will pay the principal balance at the end of the mortgage term and how much you will pay for interest during the mortgage term.

Hoes Does Fixed-Rate Works In Canada

Fixed rates are often higher than variable rates for comparable mortgages. One reason for the high fixed rates is lenders’ limited flexibility in managing the cost of funds. 

Some lenders, especially monoline lenders, go to the open market to raise capital to provide mortgage loans. The market rate also influences the cost of raising this money, which affects mortgage rates. Fixed-rate mortgages can be expensive if they raise money higher than the rate they have guaranteed your mortgage.

This is often not an issue with variable mortgage rates since the mortgage rate will be adjusted to match the market. 

When applying for a fixed-rate mortgage, your rate is reserved, approved, and registered. Even if approved, your agreed fixed rate is not guaranteed until the mortgage is registered. 

Let’s review the process of securing a specific fixed rate for your mortgage. 

Pre-approval

Mortgage pre-approval is simply a way to reserve a fixed rate for your mortgage. Pre-approval is an agreement for the lender to hold a specific fixed rate for a period against changes in the market rate. This allows you to go house shopping without worrying about the rate increase before you find your dream home. The holding period is usually three to four months. 

In addition to your fixed-rate hold, the lender may also offer an “interest rate protection,” which protects your pre-approved rate from going up if the market rates go up before the mortgage is committed. Your fixed rate may not increase if the lender’s fixed rate increases during the holding period.

On the other hand, you stand to benefit if the market rate goes down. Your pre-approved fixed rate may decrease if the lender’s fixed rate has gone down before the mortgage is committed. 

Thus, getting pre-approved is an easy way to lock in a fixed rate if you plan to buy a house within the next four months. It doesn’t hurt. You are protected if the interest rate goes up and will benefit if the interest goes down. 

The pre-approved fixed rate, terms, and conditions will expire at the end of the holding period. Depending on the lender, it usually takes three to four months if you cannot commit to the mortgage.

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Commitment

Committing to your mortgage is the next step to ensuring your fixed-rate mortgage. Your mortgage application is officially approved at this stage. 

It can still be the first step if you choose to skip the pre-approved stage or if you want to refinance your existing mortgage. 

A mortgage commitment letter is issued upon detailed review and analysis of your income, credit, down payment (equity) asset, and more. The lender commits to the fixed rate by giving you a commitment letter, which is more reliable than just holding to the rate. 

The lender will hold on to the committed rate for a few days, usually 10 business days, for you to review and accept the terms of the approval. The lender may not guarantee your rate after 10 business days. Your committed rate may change either up or down, depending on the change in the market rate. 

Fulfilling Approval Conditions

Once your commitment letter is reviewed, signed, and submitted, the lender will expect you to fulfill the conditions outlined in the commitment letter to have the mortgage registered, funded, and closed. Also, depending on the letters, it is usually 90 days after the commitment is accepted to fulfill all the funding conditions. 

Your committed fixed-rate mortgage is guaranteed for 90 days.  

Suppose the mortgage is not funded and closed during these 90 days. In that case, the lender may have to re-underwrite your application, which requires that your application be updated with your most current income and credit details. Your initial committed rate may change if the lender finds that the income and credit situation has drastically changed over the 90 days. 

Funding And Registration

Your lender will proceed to fund and close your mortgage once all the funding conditions are fulfilled. The mortgage is also registered with the Land Registry as part of the closing process. 

Your fixed-rate mortgage becomes activated when registered, funded, and closed. Only after this phase is your fixed-rate mortgage guaranteed not to change even if the market rate goes up or down. Only after this phase is your mortgage payment guaranteed for the mortgage term.

Advantages Of Fixed-Rate Mortgage

  • A fixed-rate mortgage is easier to understand: a simple, straight rate with no complicated add-on options. 
  • The predictable nature of this mortgage rate type gives a sense of security as you will know your periodic payment amount throughout the mortgage loan term. There is no risk of “payment shock” from increased interest rates.
  • Also, you will know how many expenses you will incur while holding this mortgage for the entire term.

Disadvantages Of Fixed-Rate Mortgage

  • Usually, it has a higher rate than variable-rate loans. Generally, fixed-rate mortgages are priced higher than variable-mortgage loans because of the rate guarantee. Your mortgage rate is secured and guaranteed throughout the term of your mortgage, even if the market rate rises or falls. 
  • A fixed-rate mortgage may cost you more over the loan, especially in a falling market-rate environment. Because your rate is fixed, you will not benefit from the lower market rate enjoyed by holders of variable-rate mortgages if the market decreases. 
  • It is expensive to break a fixed-rate mortgage. The prepayment penalty for fixed-rate mortgages is calculated using the Interest Rate Differential. With this interest rate differential, your penalty amount increases when the market rate decreases and decreases when the market rate rises. The penalty acts as a disincentive to refinance or renew the mortgage.

Is A Fixed-Rate Mortgage A Reliable Option For You?

A fixed-rate mortgage will be the preferred option for someone who wants to play it safe and not worry about the up-and-down swings of the market rates. 

With a fixed-rate mortgage, your periodic payment amount will be unaffected regardless of how high the market rate goes. This is contrary to a variable-rate mortgage, where your regular payment amounts may likely increase with the market rate. 

Conversely, those with variable-rate mortgages benefit in a falling-rate environment. 

Depending on how comfortable you are with the world of mortgages and keeping track of the mortgage market, a fixed-rate mortgage may be a better option, given its consistency and predictability. It is also safer, shielding you from the interest rate noise in the market. 

Given their limited mortgage knowledge, it is not uncommon to see most first-time homebuyers going for fixed-rate mortgage solutions.

A fixed-rate mortgage will be a better option in a low-rate environment. A low rate can only go up. Therefore, securing your mortgage with a fixed rate is an excellent decision because your low monthly payments are guaranteed when rates start going up. 

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