Variable vs Fixed Rate Mortgages: Which is Best for You?

If you’re in the market for a new home, you’re probably already aware that there are a lot of decisions to be made. One of the most important choices you’ll have to make is what kind of mortgage to get. Should you go with a variable-rate mortgage or a fixed-rate mortgage? Both have their pros and cons, so it’s important to understand the difference between the two before making a decision.

A fixed-rate mortgage is just what it sounds like—a mortgage with an interest rate that stays the same for the life of the loan, which is typically 15 or 30 years. This stability can be appealing to borrowers who want to know exactly how much their mortgage payment will be every month for the next few decades. It can also be easier to budget since your payments will never go up (barring any unforeseen circumstances, like property taxes increasing).

The advantages to fixed-rate mortgages include

• Stability: As mentioned, with a fixed-rate mortgage your interest rate and the monthly payment will stay the same for the life of the loan. This can be helpful for budgeting and planning purposes
• Protection from inflation: With a fixed-rate mortgage, your interest rate is locked in at the time of purchase. This means that even if inflation rises, you won’t have to worry about your mortgage payments increasing
• Potential tax breaks: In some cases, you may be able to deduct your mortgage interest from your taxable income. This could save you a lot of money over the life of the loan.

Although there are many advantages to fixed-rate mortgages, there are a few potential disadvantages you should be aware of before signing up

The biggest disadvantage to a fixed-rate mortgage is that if interest rates go down after you’ve taken out your loan, you won’t benefit from the lower rate. Your monthly payment will stay the same no matter what happens in the market.

Another possible downside is that if you sell your home or refinance before the end of your term, you may have to pay a penalty for breaking your contract.

Finally, it’s important to remember that even though your monthly payments will stay the same, over time they’ll add up to more than they would with a variable-rate mortgage. So if you think you might move or refinance within the next few years, a variable-rate mortgage could be a better option for you.

On the other hand, a variable-rate mortgage has an interest rate that can change over time. The initial interest rate is usually lower than that of a fixed-rate mortgage, which can save you money in the short term. However, if interest rates rise, your monthly payments could increase as well—sometimes by a significant amount. This type of mortgage might be best for someone who doesn’t mind a little bit of uncertainty and is comfortable taking on more risk.

Some advantages to variable rate mortgages include

• Potential savings: The initial interest rate on a variable-rate mortgage is usually lower than that of a fixed-rate mortgage. This can save you money in the short term, especially if interest rates go up
• Flexibility: With a variable-rate mortgage, your interest rate and monthly payment can go up or down depending on the market. This can be helpful if you think you might move or refinance within the next few years
• No penalties for early repayment: Unlike with a fixed-rate mortgage, there are no penalties for repaying your variable-rate mortgage early.

list of potential disadvantages to a variable rate mortgage include

• The initial interest rate is usually lower than that of a fixed-rate mortgage, which can save you money in the short term. However, if interest rates rise, your monthly payments could increase as well—sometimes by a significant amount.
• This type of mortgage might be best for someone who doesn’t mind a little bit of uncertainty and is comfortable taking on more risk.
• Unlike with a fixed-rate mortgage, there are no penalties for repaying your variable-rate mortgage early.

There’s no right or wrong answer when it comes to choosing between a variable and fixed-rate mortgage—it all depends on your personal circumstances and preferences. Be sure to speak with a financial advisor to get more information and figure out which option is best for you.