How to choose between a fixed rate and variable rate mortgage loan?

One of the most important decisions you will have to make when it comes to your mortgage loan is choosing between a fixed rate mortgage and a variable rate mortgage (also known as a floating rate mortgage). It’s important to carefully consider your options before making a final decision, as both options have their advantages and disadvantages.

What is a fixed rate mortgage?

A fixed rate mortgage is a type of mortgage loan where the interest rate is locked in and remains the same for the entire loan term. This means that your monthly mortgage payments will stay the same, regardless of fluctuations in interest rates in the market. This provides peace of mind for homeowners who prefer stability and predictability in their monthly expenses.

What is a variable rate mortgage?

On the other hand, a variable rate mortgage, also known as a floating rate mortgage, is a type of mortgage loan where the interest rate changes over time in response to changes in market interest rates. The interest rate on a variable rate mortgage can go up, which means that your monthly mortgage payments may also increase. But it may also go down, which means you will save on your monthly mortgage commitment.

Factors to consider in choosing a fixed rate mortgage or a variable rate mortgage

Here are some factors to consider when choosing between a fixed rate and variable rate mortgage:

1. Stability and predictability:
   If you prefer stability and predictability in your monthly expenses, a fixed rate mortgage may be the right choice for you. This is because the interest rate and monthly payments remain the same for the entire loan term, which allows you to budget accordingly.
   
2. Interest rate risk:
   With a variable rate mortgage, you are taking on the risk of interest rates increasing. This means that your monthly mortgage payments could go up, which could be a burden for some homeowners. On the other hand, if interest rates go down, you could potentially save money on your monthly mortgage payments.
   
3. Future economic conditions:
   Consider the current economic conditions and future economic outlook when choosing between a fixed rate and variable rate mortgage. If you expect mortgage interest rates to rise, a fixed rate mortgage may be a better option to lock in a favourable interest rate. However, if mortgage interest rates are expected to drop, a variable rate mortgage may be a better option, as the interest rate on your mortgage will lower accordingly.
   
4. Risk tolerance:
   Your personal risk tolerance will also play a role in your decision between a fixed rate and variable rate mortgage. If you are comfortable taking on the risk of interest rates increasing, a variable rate mortgage may be a better option for you. On the other hand, if you are conservative and prefer stability and predictability, a fixed rate mortgage may be a better option.

Ultimately, the decision between a fixed rate and variable rate mortgage will come down to your personal financial situation, risk tolerance, and future plans. It’s important to carefully consider your options and seek the advice of a financial adviser or mortgage professional before making a final decision.

Need help to get or save money on your mortgage? Let a mortgage specialist get you the best deal.

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