10 Dec Fixed or Variable Rate Mortgage – Which Is Right for You?
Deciding whether to plump for a fixed rate mortgage or a variable one, is not always easy, and it may depend upon what advice you seek, where you seek it from, and what your personal circumstances are. However, with a little foresight, careful consideration and guidance from a professional mortgage broker, you can confidently make the right choice for you. Let’s firstly reevaluate what each type of rate is, before looking at how you can choose the right one for you:
Fixed rate mortgages:
Often beginning life as a 5-year fixed rate mortgage, the interest rate of the loan will stay the same until it is due for renewal, and rates are determined by the Government of Canada’s bond yields at the time of purchase (which then don’t alter, irrespective of whether the bond yields do). Thanks to fixed rate mortgages, every month you’ll know exactly how much of your mortgage payment will go toward interest, and how much will go toward your principal for the duration of the term.
Variable rate mortgages:
With variable rate mortgages, the interest rate can go up and down throughout the term, and is determined by the Bank of Canada’s lenders prime rates. These are the rates of interest on loans that the banks are currently offering to their best customers. As the prime rate goes up or down over the term, so will your mortgage rate.
Choosing the right type of mortgage for you:
Historically, homeowners have been able to save money on variable rate mortgages, and research continues to show that these mortgages have outperformed fixed rate mortgages for decades now. That said, many home buyers, in Canada and indeed, globally, don’t like to take any kind of risk, and prefer the peace of mind that a fixed rate provides them with; knowing a rate won’t change for the entire duration of the term can be a weight off of their shoulders, and understandably so.
So, does that mean that the choice is purely subjective?
Well, in short, yes, but homebuyers should always seek the most up-to-date and accurate advice from a professional who deals with mortgages, such as a broker. While you might feel that you don’t want to take any kind of risk when you purchase your new home – although there are risks associated with every significant expenditure and financial commitment that you make, of course – your broker will help you see the situation clearly and rationally, and will give you unbiased advice as to which might benefit your more in the long term.
To give yourself the best chance of making the right mortgage decision for you, work closely with a qualified broker and let them help take the stress out of the entire process. Then, ultimately, provided you’ve armed yourself with all the information you need to make an informed decision, your choice will at least be educated, and not based upon supposition or misinformation.