KANETIX Explores the Advantages and Disadvantages of a Fixed Mortgage
TORONTO, ONTARIO (PRWEB) July 01, 2013 -- If someone is in the market looking for a home, they have to consider the cost of their mortgage to ensure they find a home they can afford. Although cost is important, a homeowner has to decide whether to choose between a fixed or variable mortgage says KANETIX.
Mortgages like any kind of loan is associated with a particular interest rate. The interest rate depends on a variety of factors including the type of loan, the duration of the loan and the amount of money that is being borrowed. With fixed-rate mortgages, the interest rate will remain the same throughout the duration of the loan. Monthly payments for a fixed-rate mortgage loan are comprised of a percentage of the principal amount plus interest.
Mortgage loans are subject to an amortization schedule which allows individuals to figure out the amount of payment they will have to make on a monthly basis. In the case of a fixed-rate mortgage, a homeowner can use the following example of an amortization schedule to take a look at the sort of payments a person would have to make.
A good example of this: imagine the mortgage term is set at 30 years, the principal amount is equal to $100,000 and the interest rate set by the financial institution is 6%. The amortization schedule shown below is applicable for the first three months, but since the monthly payments are not subject to a variable interest rate, a homeowner could easily extend it to the duration of the mortgage term.
The first payment is equal to a total of $599.55 out of which $99.55 is the principal payment and $499 is the interest payment. Payment number two, the second month's installment, is equal to a total of $599.55 out of which $100.05 is the principal payment and $499.50 is the interest payment. The third payment is equal to a total of $599.55 out of which $100.55 is the principal payment and $499 is the interest payment. From the above schedule, a homeowner can clearly assume that the payments made towards the loan during the first couple of years are primarily comprised of interest payments.
For a homeowner to determine whether a fixed rate mortgage is right for them, they have to review their current financial situation. This includes looking at their sources of income and how much they are able to make during a single month. They also have to carefully consider their monthly expenses as well as their ability towards saving for post-retirement life.
The main advantage to a fixed-rate mortgage is that it will protect a consumer from any sudden or volatile changes that may occur in regards to the interest rate. With an adjustable-rate mortgage, a sudden rise in the interest rate can lead to missed payments as well as budgeting issues. The key factor to take note of is the mortgage term a homebuyer will end up choosing. Fixed-mortgage loans will pretty much be comprised of the same type of features irrespective of a homeowners choice regarding a lender. However, the mortgage term will eventually determine the total amount of interest that one will end up paying. Usually, financial institutions, as well as other types of lenders, will offer a mortgage term of 15, 20 and 30 years.
If a homeowner wants their monthly payments to be as low as possible, then they will definitely want to opt for a 30-year mortgage term. However there is a downside to this option, a homeowner will end up paying a considerable amount of interest.
With the 20 or 15-year mortgage loan option, a consumer will be subject to higher monthly payments. Although a consumer can benefit as they will be able to obtain a lower interest rate as well as pay off their loan faster, which will reduce their overall expense.
Although, a common issue with obtaining a fixed-rate mortgage loan is that while the interest rate is higher than under normal circumstances, homeowners face problems in qualifying for the loan since the monthly payments are going to be considerably higher.
Nevertheless, a fixed-rate mortgage can be a great option for potential homeowners. It is important for homeowners to choose the right loan for them to ensure they stay within their own financial limitations.
About Kanetix®
Launched in October 1999, Kanetix was Canada's first online insurance marketplace and today provides over a million quotes per year to consumers looking for insurance, as well as comparisons for mortgage rates and credit cards.
The Kanetix comparison service is a one-stop shopping environment for consumers. Each day, thousands visit the Kanetix website at http://www.kanetix.ca to comparison shop their various financial needs. Shoppers choose what they want to compare, obtain a quotation and complete an online application or, with the help of Kanetix connect with the provider to purchase or apply for the product over the phone.
Through its Software as a Service team, Kanetix is also the leading provider of online insurance quotation technology, developing online quotation systems, mobile solutions, actuarial tools and websites for many of Canada's largest insurance brands.
For more information, visit Kanetix.ca or contact:
Natasha Carr
416.599.9779 ext. 343
publicrelations(at)kanetix(dot)ca
Kanetix Ltd.
Cathy-Anne O'Brien, BlueSky Communications, 416.929.2506, [email protected]
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