Should you take out a fixed or variable mortgage rate? It is a question that seems pretty straight forward but it is one that needs careful consideration and a lot of consultation. A fixed mortgage simply implies that the interest rate is set and does not change throughout the loan’s span. A variable rate on the other hand implies that the interest rates can go one of two ways, up or down. At the end of the day, all you need is a mortgage rate that saves you money. There are definitely a few things that you need to consider before making a decision.
If you are looking for stability, then a fixed rate is the one for you. Your mortgage rate is locked for the length of your mortgage. You can be sure of the amount of money you will pay throughout the duration of your mortgage. The upside of this is that the interest rate stays the same and the downside is that if the interest rates go down at any one point during this time, you are not able to enjoy that benefit.
When interest rates go down when you are on a variable rate, you are able to put more money into repayment of the principal amount, and less on the interest accumulated. The downside of the variable is that the trend of rate is not guaranteed, it may go up and stay up, resulting in you paying way more interest than you had anticipated.
Consider your current situation
Sometimes the reason that tips the scale in favor of a certain choice is your financial situation or current stage in life at the time. You could be bringing up a young family and bogged down with responsibilities, or your children could be older and thus you are more flexible in terms of finance and commitment. The best way to choose a rate is recognizing the fact that no one knows tomorrow’s economic state. It is more of a gamble as rates could go up and not come down for a while, or they may go down and stay low for a while.
If you are the type that does not mind taking risks, then you may just consider the variable mortgage rate, depending on the rates at the time of taking out the mortgage. It is however possible to, at a later date, to change from a variable to fixed, and vice versa. Consult professionals who will be able to advice you on the current mortgage rates in BC so you make an informed decision.
Which rate is more affordable for you?
Sometimes it makes more sense to take out a fixed mortgage than a variable, especially when you have a fixed income, and when the difference in rates is minimal at the time of taking out the mortgage. It also gives you a better grip on your financial organization, knowing what you need to pay at any given time, without having to keep tabs on the market rates at all times, hoping that they go down. It is a common thought that during election years, rates normally take a nose dive. This however is speculation and is not enough to peg a decision on, so it pays to consider all aspects of the economic situation based on facts.
Buying a home is a major step for any family, and the decisions made in choosing a mortgage rate may have long term implications if not considered with care. It is always a good idea not to rely on your own understanding and to seek advice from professionals, always having in mind that whatever decision you make has an impact on your family.Mortgage