If you’re in the market for a mortgage, you’ve likely come across the terms “fixed” and “variable” when it comes to interest rates. But what do these terms mean, and which one is right for you? In this article, we’ll explore the differences between fixed and variable mortgage rates, as well as the pros and cons of each.
What Are Fixed Mortgage Rates?
A fixed mortgage rate is exactly what it sounds like: a mortgage with a fixed interest rate that stays the same for the entire term of the loan. This means that your mortgage payment will remain the same every month, making budgeting and planning for the future much easier.
Pros of Fixed Mortgage Rates:
- Predictability: Fixed mortgage rates provide a stable, predictable payment that won’t change over time.
- Budgeting: With a fixed mortgage rate, you can easily budget for your mortgage payment each month.
- Peace of Mind: Fixed mortgage rates provide peace of mind knowing that your payment won’t increase.
Cons of Fixed Mortgage Rates:
- Higher Initial Rates: Fixed mortgage rates tend to start off higher than variable rates.
- Potential for Higher Overall Costs: If interest rates drop, you won’t be able to take advantage of the lower rates without refinancing.
What Are Variable Mortgage Rates?
A variable mortgage rate, on the other hand, is a rate that fluctuates based on the prime rate set by the Bank of Canada. This means that your mortgage payment could go up or down depending on changes in the economy.
Pros of Variable Mortgage Rates:
- Lower Initial Rates: Variable mortgage rates tend to start off lower than fixed rates.
- Potential for Savings: If interest rates drop, you’ll be able to take advantage of the lower rates without refinancing.
- Flexibility: Variable mortgage rates offer more flexibility in terms of prepayment options and early repayment penalties.
Cons of Variable Mortgage Rates:
- Uncertainty: Variable mortgage rates can be unpredictable, making budgeting and planning more difficult.
- Risk: There is a risk that your mortgage payment could increase if interest rates rise.
Which One is Right for You?
The decision between fixed and variable mortgage rates ultimately comes down to your personal financial situation and goals. If you value predictability and want to budget your payments over the long term, a fixed mortgage rate might be the better option for you. However, if you’re comfortable with some uncertainty and want the potential for savings, a variable mortgage rate could be a good choice.
In conclusion, both fixed and variable mortgage rates have their pros and cons. The decision ultimately comes down to your personal financial situation and goals. It’s important to do your research, consider your options, and speak with a mortgage professional to determine which type of mortgage rate is right for you.
We hope that this article has provided you with a clear understanding of the differences between fixed and variable mortgage rates, and has helped you make an informed decision about which one is right for you. For more information, please give us a call and we will be happy to help with all your Mortgage questions.