Rates – Fixed VS Variable?

Home buyers come across the variable mortgage rate and the fixed mortgage rate when shopping for the best mortgage rates. Let’s take a look at the features and benefits of these two types of rates.

What are fixed mortgage rates?

With a fixed mortgage rate, you can lock in the agreed rate for a specific term, usually in the range of five years. This stabilizes the monthly payments with the secure feeling that there will be no surprise increases. You can plan your budget and finances in a better way.

What are variable mortgage rates?

Variable mortgage rates change with market variations and this means you are at the mercy of the mortgage lender’s prime rate. This means you have to be prepared for any increase or decrease in your monthly payments. You could very well end up paying hundreds of dollars more in interest without warning. This can be scary especially for those living on a budget.

Benefits of each.

The big question is which is better, fixed or variable rate? If you prefer to be secure and stay risk-free, fixed rates are better. This is often recommended for first time home buyers.

Variable rates carry lower penalties if you decide to break your mortgage early for some reason. There is more flexibility as a variable rate lets you lock in anytime at no charge. This is not possible with fixed rates. If the market rates dip, variable rates can be lower than fixed rates and allow you to increase your variable payment, which means you can lower your principal and save on interest.

Trends show that as the borrower, you are likely to pay less interest over the term of your loan with a variable rate when compared with a fixed rate loan. It is important to remember that the longer the amortization period of your loan, the bigger the impact of the change in mortgage interest rates on your payments.

Getting that home mortgage is in itself a stressful affair. Deciding on whether a fixed rate or variable rate is right for you would depend on our long term needs.

Need help with your decision? Contact me anytime, I would love to work through this with you!

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