Adjustable-Rate Mortgage in Toronto
With virtually endless types of adjustable-rate mortgages available, it can be hard to narrow down your options and pick the right one for your lifestyle and budget.
That’s where eMortgage Solutions comes in. We specialize in mortgage planning. Plus, our extensive lender network gives us access to the leading, value-driven products on the market.
Schedule an appointment with one of our representatives to explore your possibilities today. Reach our team at (416) 258-0156.
What Is an Adjustable-Rate Mortgage?
In a nutshell, an adjustable-rate mortgage, commonly referred to as an ARM, is a payment plan with rates that fluctuate every year in accordance with the market. As a result, your monthly payment plans can either go up or down each term.
While ARMs are subject to change, they usually do include a short-term, fixed-rate period at the beginning of the plan. Lenders typically offer meager rates during this time as an incentive for prospective applicants so that they can guarantee a certain amount of stability and cost-savings.
How Does an Adjustable-Rate Mortgage Work?
Adjustable-rate mortgages work differently depending on their structure. For example, the initial fixed-rate periods of ARMS can range in length, the most common examples being 3, 5, 7, and 10 years. These structures are called 3/1, 5/1, 7/1, and 10/1 mortgages.
As mentioned, the first digit corresponds to the length of the fixed-rate period. The second digit refers to the frequency with which your rate will change after the initial period ends, in this case, every year.
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What Drives Change in Adjustable-Rate Mortgages?
The rates in an adjustable-rate mortgage fluctuate in response to an index, which is an economic indicator chosen by your lender or banker. Many varieties of indexes exist, so it’s essential to understand which kind of index is driving change in your mortgage. That way, you can plan your budget accordingly.
Our mortgage brokers seek to alleviate unnecessary stress for our clients by doing this research for them. We’ll do our due diligence and explain to you precisely how your index operates. With our in-depth expertise, you’ll be able to predict better and calculate your mortgage rates each year.
What’s the Difference Between Adjustable Rate Mortgages and Fixed-Rate Mortgages?
The difference between an adjustable-rate mortgage and a fixed-rate mortgage is simple. The rate of an ARM changes every term, whereas the rate in a fixed-rate mortgage stays constant until maturity.
What Are the Pros and Cons of an Adjustable-Rate Mortgage?
The biggest incentive to an adjustable-rate mortgage is the fact that your rates can decrease, resulting in significant cost-savings over the lifespan of your mortgage. If you’re able to handle the level of uncertainty that comes with an ARM, you can save significant amounts in the long run.
On the other hand, it’s not guaranteed your rates will decrease—it’s possible they may increase, too. Rate caps, which are features included in most ARMs, will limit the amount your payments can go up. However, applicants should have enough financial security to withstand some periods of higher payments.
eMortgage Solutions Can Help You Strategize for an ARM
To find out if an ARM is right for you, book a consultation with one of our experts. Our mortgage specialists can help you strategize your mortgage plan. We’ll provide you with detailed explanations of indexes, and in-depth calculations of potential payment scenarios.
Give us a call today!