Fixed Rate vs Variable Rate
When you get a mortgage, you have two choices when it comes to your interest rate: Fixed or Variable.
With a fixed rate, you get the same interest rate for the entire 'term' of the loan - which might be between 1 and 10 years. On the other hand, a variable rate will fluctuate over the time period, as bank rates go up and down - meaning your interest rate, and payment, can increase or decrease.
Both have their benefits, but the right one depends on your unique situation and goals. Think about these pros and cons when weighing your mortgage options.
Fixed-Rate Mortgage Pros:
- Consistent interest rate, and payment, for the term of the loan
- Easy to plan for, and fit into your budget
Fixed-Rate Mortgage Cons:
- A higher interest rate is possible - compared with variable-rate loans
- Refinance required if you want to take advantage of lower interest rates
Variable-Rate Mortgage Pros:
- Lower interest rate up-front - compared to fixed-rate loans
- The rate and payment can drop if market rates fall
Variable-Rate Mortgage Cons:
- Rates and payment amounts can fluctuate, so you could end up paying more down the road
- It can be difficult to plan your budget without a consistent payment
Generally speaking, a variable-rate loan can be a good idea if you plan to move out of the home, or refinance before your interest rate changes. If you’re looking to stay put for the long haul though, a fixed-rate mortgage is typically a better idea.
Please reach out if you have any questions about homebuying, or need help kick-starting your next home search.
