Deciding Between Variable and Fixed Mortgages
When it comes to taking out a mortgage, a question that arises in Canadian homeowners’ minds is ‘Should I opt for a variable or a fixed rate home mortgage?’ The interest rate is probably the most important consideration for literally all financial products, including bad credit mortgage.
Here is some advice about fixed and variable rates that can help you make an informed choice. What makes a fixed rate attractive? Perhaps the biggest advantage of a fixed rate mortgage is the security it offers. When you lock in your rate, you know from the outset how much you will be paying towards interest and principal throughout your loan term.
This certainty will help you manage your mortgage payments better and you will have peace of mind knowing that your payments won’t change. However, there is a downside to locking in to a rate. You won’t have the flexibility to make the most of rate decreases that could significantly lower your interest costs.
Also remember that you may have to pay a small interest rate premium for this security. Why go for a variable rate mortgage? Floating with the prime rate, a variable rate has the potential to offer significant long-term savings. However, the uncertainty attached to a variable rate mortgage makes it a bit of a risk. Whenever the rates rise, your interest costs will increase correspondingly.
Keep in mind that with this kind of mortgage, you can make fixed mortgage payments weekly, bi-weekly or as per the agreed-upon schedule. But as prime rate changes, the amount of the mortgage payments going towards interest and principal will vary.
With lower rates, more of your mortgage payments goes towards the principal while higher rates means that an increased amount of your payment will go towards the interest. Examine these considerations, along with your financial situation, to make a judicious decision.