Unless you are fortunate enough to be able to pick the right parents, won a lottery or are exceptionally skilled with your finances, you probably require a mortgage for your home (and the people who don’t require one most likely are not reading this). With that established, you are now faced the age old dilemma that has weighed on the minds of home buyers for decades…
“should I go with a fixed rate mortgage or a variable rate mortgage?”
You shouldn’t feel too bad as most everyone faces this choice… so with that in mind, today we are going to try to give you a bit of help in determining which option may be the better bet for you. Unfortunately we have to confess that there really is no simple answer or perfect fit for everyone. Both fixed mortgages as well as variable mortgages have their pro’s and con’s.
So having said that, we’ll start with fixed rates.
One benefit of fixed rate mortgages (that may be the key factor that draws people to them) is the consistency they offer. Since it is a “fixed” interest rate, the corresponding payments you agree to will be the payments you’ll make for the entire length of the term. For some people that consistency lets them sleep at night. Another element of fixed rate mortgages that draw people to them currently is that thanks to the incredibly low interest rates, you can lock in a 5 or even 10 year mortgage at an interest rate that generations of home buyers would never have dared believe possible!
When it comes to variable rates, there are a number of pros’s here as well.
First, when it comes to saving some money by reducing your mortgage payment, historically variable interest rates have won out over fixed mortgage rates. Studies have shown variable interest rates beat fixed rates seventy to ninety percent of the time. This is in part due to the fact that for years rates have typically decreased as well as the fact that variable rates are about a quarter point to a full point lower than fixed rates. Having said that, it is a fair assumption that there will likely be more future interest rate increases than decreases because, really how much lower can they realistically go?
(Further to this, as of writing this we’ve already seen some upward movement in interest rates.)
So what is the final answer on fixed rate mortgage or variable rate? Really it comes down to your risk tolerance and what your plans (both short term and long term) are for the property itself.
If you want to lock in for consistency, or due to the historically low rates, go with a fixed mortgage. If on the other hand you’re more aggressive and want to play the market, then variable might be the better bet for you. If you’re still struggling, feel free to reach out to either Heather or Mariale. We’ll happily discuss your unique situation and give you our recommendation.