Fixed Rate vs Variable Rate

If you are currently in the market for a new home or you’re thinking about purchasing an investment property, one thing that you will need to give a lot of consideration to is the type of mortgage you go for. There are a lot of different factors to think about, but one of the main decisions is whether to opt for a fixed rate or variable rate mortgage. Read on to discover our fixed vs variable mortgage comparison.

What is a fixed rate mortgage?

A fixed rate mortgage is one whereby the interest rates will stay the same for the entire term of the loan. This means that the cost of borrowing money will remain constant throughout the full life of the loan. When the market fluctuates, your loan will not change. You will have standardized monthly payments.

The 10, 15, 20, 25 and 30 year fixed mortgages are one of the most popular fixed loans on the market today. A lot of people opt for this option because it enables them to easily budget for their payments, as they know exactly how much money is going to come out of their bank account every month. This is especially beneficial for individuals who have tight but stable finances, as it ensures that they are protected against the possibility of increasing interest rates, which could end up increasing the overall cost of their loan.

The 10, 15, 20, 25 and 30 year fixed mortgages are one of the most popular fixed loans on the market today. A lot of people opt for this option because it enables them to easily budget for their payments, as they know exactly how much money is going to come out of their bank account every month. This is especially beneficial for individuals who have tight but stable finances, as it ensures that they are protected against the possibility of increasing interest rates.

which could end up increasing the overall cost of their loan.The 10, 15, 20, 25 and 30 year fixed mortgages are very common for fixed loans on the market today. A lot of people opt for this option because it enables them to easily budget for their payments, as they know exactly how much money is going to come out of their bank account every month. This is especially beneficial for individuals who have tight but stable finances, as it ensures that they are protected against the possibility of increasing interest rates, which could end up increasing the overall cost of their loan.The 10, 15, 20, 25 and 30 year fixed mortgages are one of the most popular fixed loans on the market today. A lot of people opt for this option because it enables them to easily budget for their payments, as they know exactly how much money is going to come out of their bank account every month. This is especially beneficial for individuals who have tight but stable finances, as it ensures that they are protected against the possibility of increasing interest rates, which could end up increasing the overall cost of their loan. A variable loan is essentially the opposite of a fixed loan. With this mortgage, the interest rate is going to change over time in response to market changes. Some of the most popular types of loans in this category are the 2/1, 3/1, 5/1 and 7/1 adjustable mortgages. With this loan, (5/1), the rate is fixed for say five years, and then it moves onto a variable model, meaning it adjusts every annum, or so many times per year. Of course loans do vary.

Generally speaking, variable loans will have lower interest rates when compared with fixed mortgages. One of the reasons for this is because they tend to be the riskier solution of the two. Should the interest rates increase, the cost of borrowing is also going to increase. This means you could end up paying a lot more for your property, and so this is a risk that you certainly need to be aware of. However, if you can afford to take this risk or if you are someone who intends to pay off your loan earlier than the end date, a variable loan can be suitable.

Deciding on Some Positives and Negatives

Now that you have a good understanding of how both loans work, let’s take a look at which loan is going to be better for you with a fixed vs variable comparison.

Pros and Cons

• Your interest rate won’t increase with a fixed loan - If you choose a variable loan, there is always the risk that your payments could end up increasing. There is no guarantee it will go the other way.
• You should pay a manageable monthly rate - With a fixed loan, you will know exactly what you need to pay each month, so there will be no nasty surprises. With a variable loan, there’s no way of knowing your exact monthly payments or the total repayment cost.

Pros and Cons

• You may be able to get a lower interest rate - Variable rates tend to be lower when compared with fixed rate loans, especially at the beginning of your repayment term. This is not guaranteed, though.
• You could save some money - As you may be able to lock in a lower rate, you could ultimately end up saving money.

Conclusion on Fixed vs Variable Rate

Hopefully, you now have a better understanding of the differences between fixed and variable rate mortgages. There is no right or wrong answer when it comes to choosing between the two. It is all about having a thorough understanding of your own situation and selecting the mortgage that is right for your needs, connect with MortgageQuote.com who can assist you with this, and read some of our educational material to help prep yourself.