Deciding whether a fixed or variable mortgage rate is better for you is a tough decision. It ultimately comes down to your income, lifestyle and ability to handle risks, which will help determine which option makes more sense for your circumstances.
The first thing to do is to understand what each option entails. A variable rate is a mortgage whose interest rate can change throughout your term and is adjusted periodically to reflect market conditions. A fixed mortgage rate, on the other hand, has a set interest rate and your payments are the same for the term that has been selected, meaning there will be no changes to your payment plan.
The reason that people choose a variable rate is because it is normally lower than that of a fixed rate because the rate is calculated based on prime. As your interest rates start to decrease, more of your mortgage payment will go towards the principal. However, if your interest rate increases, then less of the mortgage payment will go towards the principal. This means that your amortization period can change and may be longer or shorter depending on the rise or fall of interest rates since the start of your term. If you have a high risk tolerance, a variable rate is something you should look into, although it’s important to fully understand the risks that are associated with this type of mortgage. Without warning, your interest rates could increase or decrease, so you’ll have to be sure that you can afford this option.
Those who are uncomfortable with uncertainty will prefer a fixed mortgage rate because there will be no changes and you will know exactly what your mortgage payment will be for a predetermined length of time. This means you can budget accordingly without the worry of unexpected changes to your payment plan. If you want peace of mind and cannot handle the possibility of rising rates, then this is the better choice for you. You have to factor in the type of personality that you have, so if you are going to lose sleep at night because your interest rate may increase, then stay away from a variable rate and stick to a fixed mortgage. Knowing exactly what your payments will be is a preferred option for those who have families because it will allow them to budget accordingly, making it easier to plan and eliminate the worry that may come with a rate increase.
The most important thing is that you feel comfortable with the option you select, whether it’s a fixed rate or a variable one. Purchasing and maintaining a home is stressful enough without having to worry about other elements, which is why Mortgage Makers can help! For the best mortgage rates in the Edmonton area, give them a call today!