Fixed Rate Loans Vs. Adjustable Rate
Variable rate mortgages continue to be one of the more controversial topics among homebuyers. I’m asked about them practically every day in fact. I can understand why, as variable rate mortgages do carry some strong advantages over fixed-rate mortgages.
Instead of turning this into a long commentary, I figured you’d benefit more from a good old fashioned pros and cons list. Sound good? Quick, simple, and to the point! Let’s start off with variable rate mortgages first:
Hopefully the above gives you some things to think about. Here are some other important questions to consider before making your decision:
1. How long will you stay in the home?
If you’re going to be living in the house for just a few years, the lower-rate of the variable makes more sense. I’d recommend looking into 3 year variable rate product.
2. How frequently would the Variable adjust?
No way of knowing for sure as the variable rate is tied to the lenders’ prime rate, which is tied to the Bank of Canada overnight lending rate. This rate is adjusted periodically by the Bank of Canada and used as a tool to control inflation.
3. What are interest rates doing?
When rates are higher in a strong economy, a Variable rate mortgage makes more sense. All economies cycle, if the economy is a peak performance, then the likelihood of rate increasing from there are smaller and the chances of rates decreasing are stronger. When rates begin to fall, borrowers will automatically benefit because payments will fall accordingly without the need for refinancing. When rates are low or the economy is in it’s growth phase, however, a fixed-rate mortgage often makes more sense.
Need help deciding which is the better option for yourself? Book a Free 20 Minute Strategy Session below and we will figure it out together.
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