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What is a fixed-rate mortgage?

A fixed-rate mortgage is a mortgage that involves the same interest over the entire term of the loan — from 15 to 30 years. Since the interest doesn't change, the amount of the payment doesn't change, making it easier for homeowners to budget over the long run.

Fixed-rate mortgages are actually one of the most common types of mortgages, but they have not been as attractive as variable rate mortgage in the Ontario area for several years. A variable-rate mortgage is one in which the interest rate changes with prevailing rates over time. Historically, that made the average interest rate over the life of the loan less than what many homeowners experienced with a fixed rate mortgage.

As of 2015, mortgage advisers in the Ontario area are saying that the difference between fixed and variable mortgages is smaller, so a fixed-rate mortgage might make more sense for many home buyers. A variable rate mortgage comes with the disadvantage that payments go up and down, and you aren't guaranteed that interest rates won't continue to grow over time.

Fixed-rate mortgages often come in two terms: 15-year and 30-year mortgages. With a 15-year mortgage, you end up paying less overall on the property because you are not paying interest as long. You also own the property outright much sooner. With a 30-year mortgage, your monthly payments are much smaller, although you might pay more over the entire mortgage.

Understanding mortgages before you buy your home is important. Many issues are involved in the loan process, and if you don't have a strong legal understanding of the documents you are signing, you can face issues later. If you do face unplanned issues with a mortgage, you have some legal rights under the contract. Working with someone who understand those rights might help you solve the issue in a positive manner.

Source: Bankrate, "Fixed-rate mortgages: Just the basics," Holden Lewis, accessed Oct. 16, 2015

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Yigal Rifkind, Barrister & Solicitor Attorney

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