Choosing a mortgage to suit your lifestyle is a very big decision to make. So when the time comes to make the decision on whether you want a fixed rate or a variable rate, this guide will ensure that you are aware of the differences between them. This, in turn, will make it easier to choose the one that is best for you!
Fixed Rate Mortgage
A fixed rate mortgage is the perfect way to guarantee your interest rate will not change throughout the period that you are paying off your loan. When you select this type of mortgage, you are locked into the interest rate at the time, and although the rates may fluctuate over time, you will not have to worry about yours changing. The fixed rate mortgage is perfect for when the rates are predicted to rise, but it can also be a detrimental choice, as it does not allow you to take advantage of when the interest rates drop. Overall, the fixed rate mortgage is the best choice for people who require a steady guarantee that their payments will remain the same for their term. With the guaranteed same monthly payments, it makes it easier to budget, making it the safer choice if you like to know how much you will be paying each month. It is also the wisest choice for people who see themselves staying in the same home for a lengthy period of time, as it protects you from any volatile conditions in the housing market! If you are looking to purchase your forever home, this may be the best option for you.
Variable Rate Mortgage
With the constant changes in the housing market, it is no secret that interest rates are regularly fluctuating. These conditions make the variable rate mortgage a bit of a gamble, but it can also be a gamble that works in your favour! There are two types of variable mortgages, floating and fixed. Both of these involve a differing amount of interest depending on the month, which is what the ‘variable’ refers to. A fixed variable mortgage will always be the same overall amount each month, with a different amount of interest. The principle will raise or lower to make up the difference in the interest and equal the same amount over your term. A floating variable rate mortgage, however, does not have this feature and so the overall amount you pay on your mortgage can fluctuate over your term. Although this sounds alarming, it is advantageous because it allows you to benefit from better rates when the housing market changes, without having to refinance your home. This means that you may end up paying a lower interest rate on your home over time if the rates drop. The best time to choose a variable rate mortgage is when the interest rates are low and are still dropping, as it allows you to take advantage of the situation and get the best rate possible. It is, however, not the best option for everyone as you are not guaranteed to have the same monthly interest rate payments if you go with the floating option. In the broad spectrum, a variable mortgage is the best way to take advantage of lowering interest rates, but it is not ideal for predicting the financial future of your mortgage payments.
When you purchase your home, choosing the correct mortgage type will help you ensure that your monthly mortgage payments are taken care of and that your budget is on target. Whether you are the type to take a chance and try to get the best rate from a variable mortgage, or you prefer a steady financial decision like the fixed rate mortgage, there is an option to suit your needs. For more information on the differences between the two mortgage types, visit the Falconcrest Homes Blog.