Once you have finally chosen the condo of your dreams, the decisions are not over yet. It’s financing time! When choosing a mortgage, the big question is, will you choose a fixed, or variable-rate mortgage? We wanted to provide a brief overview and comparison of Fixed VS a Variable-Rate mortgages so you have the Mortgage Basics handled!
A fixed-rate mortgage guarantees your interest rate for a pre-determined amount of time, typically 5 years. When the term expires, you have the option to stay with the same lender or switch to a different one. Fixed-rate mortgages often appeal to homeowners who want stability in their monthly payments or manage a tight monthly budget.
Pros: Stability, peace of mind
Cons: Higher interest rate than a variable rate mortgage
A variable rate mortgage fluctuates with the prime rate. Corresponding adjustments are made to payments or amortization. Typically, payment adjustments are made quarterly, half-yearly, or yearly, but many variations exist. A variable-rate often allows the borrower to take advantage of lower rates. The interest rate is calculated on an ongoing basis at a lender’s prime rate minus a set percentage. For example, if the prime rate is 2.5%, the holder of a prime minus .5% mortgage would pay a 2.0% variable rate.
Pros: Generally, a significantly lower rate than a fixed-rate mortgage
Cons: Interest rates fluctuate with the market and so can your monthly payments
Choosing between a fixed or variable rate is not always an easy one. A lot depends on your current financial situation, mortgage size, and the current climate. It is always best to have a discussion with your Mortgage Broker about what works best for you.