Fixed Rate vs. Variable Rate
The decision to choose a fixed or variable rate is not always an easy one. It should depend on your tolerance for risk as well as your ability to withstand increases in mortgage payments.
Fixed rate mortgages often appeal to clients who want stability in their payments. In the current market the fixed rates are lower and more predictable going fwd. They can help manage a tight monthly budget, or are generally more conservative. For example, young couples with large mortgages relative to their income might be better off opting for the peace of mind that a fixed-rate brings. Or in a higher rate market like we have currently.
A variable rate mortgage often allows the borrower to take advantage of lower rates, usually. The interest rate is calculated on an ongoing basis at a lenders’ prime rate minus or plus a set percentage. For example, if the current prime mortgage rate is 7.2 percent, the holder of a prime minus 0.9 percent mortgage, would pay a 6.3 percent variable interest rate.
As a consumer, the best option is to have a candid discussion with your mortgage professional. This ensures you have a full understanding of the risks and rewards of each type of mortgage.
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