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How Fixed Mortgage Rates Save You Money with bmo mortgage rates canada

What Is a Fixed-Rate Mortgage Explained - Definition, Pros & ConsA fixed-rate mortgage is a type of mortgage where the annual interest rate does not change for the length of the loan, instead, the loan is fixed and then re-refinanced, this means that if the interest rate were to go up, your monthly payment would not increase. 

 

That is why fixed-rate mortgages are often referred to as low-risk loans when compared to variable-rate mortgages, the typical fixed-rate mortgage is for a period of 10 years, but there are other lengths available as well.

What Are Variable-rate mortgages?

 

A variable-rate mortgage is one where the interest rate may change during the life of the loan this means that interest rates could go up, which can be a riskier venture than a fixed-interest rate. 

 

There are two types of variable-rate mortgages:

 

With a floating-rate mortgage, the interest rate is tied to the market right now, we’re in a period of low-interest rates, so rates are lower than they were in previous years, which means a floating-rate mortgage will have a higher rate. 

 

With an adjustable-rate mortgage, the interest rate is tied to a specific index, when the index goes up, so does the interest rate on your loan. If the index goes down, your loan payment does not change, therefore, ARMs are often referred to as middle-ground loans between VARs and fixed-rate mortgages.

Why Are Mortgage Rates So High?

 

For years, the Federal Reserve kept interest rates low to increase the amount of money in the economy, this encouraged people to take more out of their savings, borrow more and spend more money, which is what you want when the economy is in need of a kick. 

 

Unfortunately, the Fed is now slowly raising interest rates and the impact is being felt throughout the economy, companies are now looking at higher borrowing costs, and consumers are seeing higher monthly payments on everything from car loans to bmo mortgage rates canada and even homeowners are seeing a rise in their monthly costs. 

 

With consumer confidence at a new low, many people are hesitant to make large purchases like a new car or home, if you already have a mortgage, you’re probably stuck paying a higher rate on that loan until rates go down again. 

 

 

If you’re planning a large purchase, like a home or car, now is a good time to think about waiting, you may end up saving money by waiting for a better price.

Strategies to Save When Mortgage Rates Are Rising

 

  1. Shop Around – Before making a large purchase, shop around first not only will this help you get a better deal, but it will also give you time to think about the purchase, which is never a bad thing. 

 

  1. Shop Wisely – Don’t just shop based on price, but also based on your needs think about what you will use the purchase for, and then make sure you shop around for the best deal that meets those needs. 

 

  1. Consider a Home Equity Loan – Fixed mortgage rates are still higher than home equity loans which means you can borrow money against your home and pay off a loan, while still keeping it as an asset should the rate go back up. 

 

  1. Pay Down Your Mortgage – Saving money is never a bad idea, and it can help when rates are rising, saving for a rainy day is a good idea, and one way to save is to pay down your mortgage, the interest rate is lower on a mortgage than it is on a credit card or another loan type. 

 

  1. Consolidate Debt – There are a few ways to reduce your monthly payments, one of which is to consolidate debt this could be a home equity loan or a loan from your credit card company.