Home owners have been able to take advantage of historically low mortgage rates for the past several years. Whether they are buying a home or making a decision to refinance a mortgage, the question about choosing a variable rate vs. fixed rate mortgage always comes up. To determine which one is best for you, consider your income, the level of risk you feel comfortable with, and your lifestyle
Variable Rate vs. Fixed Rate Mortgage: Weighing the Options
Variable rate mortgages will appeal to buyers who are looking for the lowest interest rate possible. To get this preferred rate, they need to be prepared to take on a higher level of risk, however. For example, if you are quoted a rate of prime + a certain percentage, your mortgage rate will rise and fall with changes to the prime rate.
If rates go down, more of your payment will go toward your mortgage principal. If they go up, less of your payment will be applied against what you owe. If the prime rate increases by a certain amount, it will mean that your mortgage payments will be higher. Do you feel confident that your income will be able to stretch far enough to cover this situation? If so, then this mortgage product may be right for you.
Fixed rate mortgages offer the security of a locked-in payment that will not vary during the term of the mortgage. What you select as your payment amount will not change until the mortgage is renewed.
This type of product has been very popular among Canadian homeowners, who traditionally have opted for peace of mind when making their choice. Unless there is a substantial difference in the interest rate being charged for a variable rate mortgage over a fixed rate one (a full percentage point or more), many people would prefer to know in advance that their mortgage payment will not change over the term they select.
Another advantage to choosing a fixed rate mortgage is that you will know in advance how long it will take to pay it off. With a variable rate product, you will not be able to accurately calculate the time to pay off your mortgage.
No matter which type of mortgage is right for you, Mark Price can help you find one that fits your budget. Give him a call today to book your personal consultation.