Stepping into homeownership is an exciting journey, but it also comes with its share of decisions, especially when choosing your first mortgage.
Understanding the difference between fixed and variable interest rates is crucial.
Fixed rates offer stability, as your interest rate remains the same throughout the term – making budgeting easier.
Variable rates fluctuate with the market, which can mean lower rates initially but the potential for increase over time (or vice versa).
This is to say that when you go to sign a mortgage, and the interest rate is as low as you can find anywhere, it’s usually best to opt for the fixed rate. But it’s also subject to what you’re willing to do; ie. if you want to to take a chance on a fluctuating rate that may (or may not) balance out in the long term.
When it comes to payment increments, monthly payments are offered by default. However, opting for biweekly payments can be more beneficial.
This approach not only aligns with many pay days but also allows you to make extra payments.
For the most part, this amount is determined by dividing your monthly mortgage payment by two.
But, as many realize, there will be months when more than 2 payments are made. With biweekly payments, you make an average of 26 payments per year.
This means you’ll make an extra payment or two that’s beyond what you’d normally pay with monthly mortgage payments.
In the long run, this reduces the principal faster and saves on interest over time.
While this may not reduce the total number of years on a mortgage (which is typically 25), it will mean that your payments get smaller than projected with each renewal period.
And with this being an option that makes budgeting more manageable, it’s becoming common for people to request this payment schedule.
Your mortgage advisor will be the one to walk you through these options, but you can always reach out to your realtor for tips if you’re just starting your homeowner journey.
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