Mortgage Rates… should I choose Variable or Fixed?

business woman or accountant who are using a calculator to calculate business data Accounting docume

I get this question often! Here is a blog dedicated to better understanding the above terms and which options may benefit you best. First of all, let us look at what the differences are between a fixed and variable rate.

  • A fixed-rate stays the same for the duration of your term. Your payment amount won’t change.
  • A variable rate fluctuates with increases or decreases. This means your interest rate and payment amount can go up or down during your term.

 

Here is a list of the Pros and Cons of both options: 

 

The Fixed Rate

Pros:

  • Borrowers know precisely what their monthly payments will be regardless of market rate changes.
  • Fixed rates do not rise during periods of rising interest rates.
  • Borrowers can self-select their time frames for loans

Cons:

  • Loans are less flexible under fixed-rate agreement terms.
  • Fixed rates do not fall during periods of declining interest rates.
  • Fixed-term fees may incur additional fees should the borrower want to change terms or exit the loan early.
  • Fixed-rate loans have historically been more expensive over their life than variable rates.

The Variable Rate

Pros:

  • Loan repayments decrease when interest rates fall.
  • Loans typically get better upfront perks, like low introductory rates for an initial loan period.
  • The interest rate for a variable loan is generally lower than a fixed loan

Cons:

  • Loan repayments increase when interest rates rise.
  • Loans may become more expensive than fixed-rate loans should interest rates rise quickly.
  • Borrowers face greater risk if they are overcapitalized or already at repayment capacity.
  • Borrowers may be unable to plan or forecast future cash flow due to changing rates.

So, which should I choose, a fixed or variable rate for my mortgage?

This question is ultimately up to you. However, I encourage you to find a mortgage broker or bank you trust to ask these complex financial questions. This is a choice that does matter! Having someone with wisdom and experience in the market on your side will make all the difference. As always, I am here to guide you whenever you need me.

 

-Bre

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