There are many questions you need to ask yourself when planning on buying a new home or renewing your mortgage. One of the first questions that you may be asking yourself is, “What is the difference between a variable rate mortgage and a fixed rate mortgage?”
The interest rate on a Fixed Rate Mortgage is set for a pre-determined term – usually between 6 months to 10 years. A fixed rate offers the security of knowing what you will be paying for the term selected.
Fixed Rate Mortgage Benefits:
Fixed Rate Mortgage Drawbacks:
Going the fixed rate route is often popular for first time home buyers, clients who are rate sensitive or risk adverse, and clients who like to stick to a monthly budget and don’t like their payments to fluctuate.
With a Variable Rate Mortgage, payments will fluctuate month to month depending on the prime interest rate. If interest rates go down, more of the payment goes towards reducing the principal. If rates go up, a larger portion of the monthly payment goes towards covering the interest.
Variable Rate Mortgage Benefits:
Variable Rate Mortgage Drawbacks:
Variable Rate Mortgages are popular with clients who can handle small amounts of risk and who want to be aggressive when maximizing their savings on their mortgage term. These clients typically have a budget that can afford a higher payment if the rate increases. Variable Rate Mortgages also work well for people that need to break their mortgage before the end of their term.
When it comes to Variable vs Fixed, our Mortgage Specialists can help you determine which mortgage option is best for you.
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