Before you enter the world of property ownership, you should know some mortgage basics. One of the first questions you will encounter as a home buyer is whether to choose a fixed rate or variable rate mortgage. If you choose a fixed rate mortgage, your monthly payment will remain the same for the length of your mortgage contract.
A variable rate mortgage, on the other hand, changes with the prime lending rate as set by your lender. Here are some of the basic things to know when deciding between a variable and fixed rate mortgage.
Risk Management
The appealing aspect of variable or adjustable rate mortgages is that the interest rate is generally lower than fixed rate mortgages. However, the flip side of this advantage is the risk it entails—interest rates can increase or decrease without warning. The fixed rate option generally costs more but provides a stability that a variable rate mortgage can’t guarantee. Before choosing one or the other, it’s important to understand how your mortgage will affect your income and lifestyle.
If you want to find the lowest mortgage rates and have the prospective income to manage the fluctuating market, then a variable rate mortgage may work for you. If you have a set income and want more routine mortgage payments, a fixed rate mortgage is probably the best option.
Which One is More Popular?
Generally, fixed rate mortgages are more common, with roughly 66% of Canadians choosing fixed rate over variable mortgages. However, a significant 29% still choose an adjustable rate mortgage. Adjustable rate mortgages may make more sense for experienced property owners or people with a certain amount of surplus income. Fixed rate mortgages may be more practical for first time home buyers, such as people looking to start a family.
Both types of mortgages have their benefits and drawbacks. It’s important to choose the mortgage option that makes the most sense for your life. If you need help choosing the right mortgage or finding the best rates, contact us at Team Levine for professional and courteous mortgage services. We’ll be with you every step of the way.