If you are interested in more information regarding Langley real estate, I encourage you to sign up for my monthly newsletter.
When you make that decision to purchase that first home you tend to think that all you have to do is go out and find the perfect home and the rest is easy. Nothing could be further from the truth. There are many decisions to make after you make the decision to buy THE home. One of the biggest and most important is wheather to go with a fixed or variable rate mortgage. First let me explain what the difference is. A fixed rate is locked in for the entire term of the mortgage and usually for specific period i.e. 3 years, 5 years, etc. For the variable rate the payments stay the same but the interest rate can vary from month to month based on the market. The adjustable rate mortgage both the interest rate and the payments vary based on the present market conditions.
It is a tough decision, which way to go, but you should make it based on all the information you can gather when you buy that home.
To give you an example of the math you do , I will give you a recent scenario. A client some time ago purchased a home for $465,000.00 and was in a quandary as to what to do about the mortgage. I suggested they at least think about a variable rate for the following reasons. At the time the variable rate was prime -.5 % or 1.75%. The fixed rate was 4.09% for 5 years. They were worried that the prime rate would start to rise which would mean the fixed rate would go up as well. It has been over a year now and the prime has not gone up and as a result their financial situation is as follows. They took the variable rate at 1.75 % at the time and their rate actually went down below prime to 1.65%. Their payments were based on the 5 year mortgage rate of 4.09% and were $1865.00 per month. However, their actual interest rate was 1.65% so it worked out this way for the year. They paid $1865 a month based on the 4.09 % and at the end of 1 year they had paid$15,822 off the principal and paid $6557 in interest and the balance was $425,927.00. If they had locked it in at the fixed rate for the same year they would have paid $5953 off the principal and paid $16,422 in interest and had a a of $435,796.00. So even if the market started up and they had to lock in, they have already saved a lot of money up front. For example if they wanted to keep the same payments and lock the rate in at 4.09 % they would have knocked 3 years off the amortization period. So as you can see you have to sit down and to the math on what is best for you.
