Variable Vs. Fixed Mortgages: Choose The Right One | Refresh Financial

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Variable vs. Fixed Mortgages: Are You Sure You’ve Chosen The Right One?

 Variable vs. Fixed Mortgages

There are so many decisions to make when it comes to buying a house. One of these decisions is deciding to go with a fixed or variable rate mortgage. Which is the better option? If you're wondering about the differences of variable vs. fixed mortgages, this blog will cover the upsides and downsides for each option.

Variable vs. Fixed Rate Defined

A variable rate mortgage is a mortgage with an interest rate that changes from time to time, adjusting itself to the conditions in the market. A fixed rate mortgage is one that has a locked interest rate for a certain number of years.

The Benefits

Variable rate mortgages commonly have lower interest rates than fixed rate mortgages, but fixed rates will buy you some security. With a fixed rate mortgage, you will know what your payments will be for the next five or ten years. A variable interest rate will allow your payments to shrink when interest rates are low, but there is also the potential for them to increase.

A fixed rate mortgage is fantastic for budgeting. You can set yourself up with a five-year savings plan, knowing that your monthly housing costs won’t rise. You can set goals for yourself, like paying off debt or improving your credit score. It becomes easier to plan for the future when you have certainty that your bills won't change or fluctuate. Once you get approved for a fixed rate mortgage, you can rest easy and enjoy the stability of knowing your payments will not change.

The Pitfalls

The downside to a fixed rate mortgage is that your rate will higher than that of a variable rate. You won't benefit from any market shifts or interest rate drops during the fixed period on your mortgage.

A variable rate mortgage has less certainty than the fixed rate alternative. Even so, data suggests that these types of mortgages are cheaper in the long run. In Canada however, mortgage rates have been trending downward for the past 30 years. Some experts believe that this pattern will continue, while others suggest that this trend might soon come to an end and that we'll begin to see significant growth in rates.

How To Decide

The choice is yours to make. It depends on your lifestyle and what sort of money handler you are. If you're the type of person who lives paycheck to paycheck, stability might be what you need, in which case the fixed rate could be a better option. If you're great at saving and budgeting, then a variable rate mortgage could be advantageous. Weigh the pros and cons and decide which is best for you!

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