Fixed vs. Variable Mortgage – What is the Difference?
Tuesday, July 10th, 2018
For those who are shopping for a home in Sherwood Park or Edmonton, whether this is their first home or their third home, the mortgage options you have can make it even harder to make a decision. So, once you have found the home of your dreams, what type of mortgage do you need? Well, you’re in the right place! Not only am a top 100 REALTOR® with Re/Max Worldwide, but I am also a licensed mortgage broker – an expertise combo that’s a rarity within the industry. I have put together some information on the differences between the two main types of Mortgages: fixed and variable mortgages.
What is a Fixed Mortgage?
When you go with a fixed mortgage you are going to be given an interest rate that never changes. For the entire term of your mortgage whether this is a 15-year or 30-year mortgage, your interest rate will remain unchanged. Thus, most often your mortgage payment will be the same for the entire term of the mortgage.
What is a Variable Mortgage?
A variable mortgage can be found in the 15 and the 30-year option. However, the difference between this and a fixed mortgage is that the variable part of the mortgage means that the interest rate can change over time. There is not definite as to how low or how high this interest rate will go throughout the years.
Which is Better?
Which type of mortgage is a better option for you? Both have pros and cons:
1. A variable mortgage often starts out with a lower rate than what you will find with a fixed mortgage.
2. There is risk involved with a variable mortgage since it truly depends on the market. Currently, the market has some of the lowest interest rates that have been seen in the past ten years. However, there is no guarantee that these rates stay low since they depend upon the market.
3. Fixed mortgages do have a higher interest rate than most initial variable loans.
4. The good part about fixed mortgages: you know what your interest rate will be for the entire period of your loan.
So, which is better? The fixed rate mortgage is the most popular choice. People like knowing what they will pay from year to year. They also like that they won’t get any surprises stating that their rate has doubled from what they previously paid, which is always a risk with the variable mortgage. However, for those who plan on paying for their home within a few years, rather than the standard 15 or 30-year mortgage, they may find that variable mortgages are worth their risk.
When you are shopping for a home, be sure that you are considering your mortgage options. A good analogy that has been given for those who are deciding between the two is to ask yourself this: do you buy extended warranties to protect larger purchases? If so, then this shows that you are a planner, and a variable rate mortgage is not going to fit your needs or give you the financial security that you like to have. Weigh the pros and cons of each mortgage and choose the best one that fits your financial ideals and your life.
If you’re ready to talk mortgages and real estate, call me at 780-707-6015 today or get in touch to get the mortgage pre-approval process started!
