One of the first things for home-buyers to decide on is the payment rates: fixed or variable.


Fixed mortgage rates is a popular choice since the mortgagor knows exactly how much to pay monthly for the whole course of the mortgage term; since the interest rate and the amortization remains fixed. It is less risky and allows you to budget accordingly.


Variable mortgage rates on the other hand can have your interest rates and amortization fluctuate over the course of your term. Lenders set a market interest rate called "prime", it can either affect only the loan interest you pay or just a portion of it. About 26% of home buyers opt for variable rates since historically, prime lending rates are lower, thus they end up paying less.

Let’s view this example scenario below:


Purchase Price $300,000.00

Downpayment $50,000.00

Loan Principal $250,000.00

Term 5 years

Amortization 25 years



TERM

Fixed Rates

12-month payment

Variable Rates

12-month payment

Year 1

2.74%

$13,800.00

Rates= 2.6% Prime= 0.40%

$13,584.00

Year 2

2.74%

$13,800.00

Rates= 2.6% Prime= 0.40%

$13,584.00

Year 3

2.74%

$13,800.00

Rates= 2.65% Prime = 0.35%

$13,668.00

Year 4

2.74%

$13,800.00

Rates= 2.65% Prime = 0.35%

$13,668.00

Year 5

2.74%

$13,800.00

Rates= 2.65% Prime = 0.35%

$13,668.00

Total


$69,000.00


$68,172.00




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