When it comes to choosing a mortgage, one of the most important decisions you’ll make is whether to go with a fixed or variable interest rate. Both options have their pros and cons, and the decision you make could have a significant impact on your monthly payments and overall financial well-being. In this article, we’ll take a closer look at fixed and variable mortgage rates and help you decide which one is right for you.

Fixed Mortgage Rates

A fixed mortgage rate is exactly what it sounds like: a rate that remains fixed for the duration of your mortgage term. That means you’ll pay the same amount of interest every month, regardless of whether interest rates go up or down. Fixed mortgage rates are popular with homeowners who want the security of knowing exactly what their payments will be each month. They’re also a good choice if you think interest rates are likely to rise in the future and you want to lock in a low rate now.

However, fixed mortgage rates can also be higher than variable rates, especially if interest rates are currently low. That means you could end up paying more interest over the life of your mortgage than you would with a variable rate. In addition, if interest rates do drop, you won’t be able to take advantage of the lower rate without refinancing your mortgage, which can be costly.

Variable Mortgage Rates

A variable mortgage rate, on the other hand, can fluctuate over the course of your mortgage term. Variable rates are usually tied to the Bank of Canada’s prime rate, which can change based on economic conditions. When interest rates are low, variable rates can be an attractive option because they usually offer lower rates than fixed mortgages. Plus, if interest rates drop, your monthly payments will decrease as well, which means you’ll pay less interest over the life of your mortgage.

However, variable mortgage rates can also be risky because they can go up as well as down. That means your monthly payments could increase if interest rates rise, which could make it harder to manage your budget. If you’re someone who likes to know exactly what you’ll be paying each month, a variable rate might not be the best option for you.

Which Option is Right for You?

Deciding between a fixed or variable mortgage rate depends on a few factors, including your financial situation, your risk tolerance, and your outlook on interest rates. Here are some things to consider:

• If you’re risk-averse and want the security of knowing exactly what your payments will be each month, a fixed mortgage rate is probably the way to go.
• If you think interest rates are likely to rise in the future and you want to lock in a low rate now, a fixed mortgage rate is a good choice.
• If you’re comfortable with some level of risk and you think interest rates are likely to stay low or even drop in the future, a variable mortgage rate might be a better option.

Ultimately, the decision you make should be based on your individual circumstances and your long-term financial goals. A mortgage professional can help you weigh the pros and cons of each option and guide you towards the one that’s right for you.

Conclusion

Choosing between a fixed or variable mortgage rate can be a tough decision, but it’s important to take the time to consider your options carefully. By understanding the pros and cons of each option and thinking about your financial situation and goals, you can make an informed decision that will help you achieve long-term financial stability. Whether you choose a fixed or variable rate, the most important thing is to work with a trusted mortgage professional who can help you navigate the complex world of mortgage financing and find the right solution for your needs.

Still not sure? Talk to us to help find your perfect solution.