Fixed vs Variable Interest Rates

In the context of mortgages, interest rate risk can have a significant impact on your monthly mortgage payments and the overall cost of your mortgage.

Understanding the pros and cons of each option and weighing them against your personal financial situation and risk tolerance can help you make an informed decision.

Pros:

• Offer predictability and stability since the interest rate and monthly payment remain the same for the entire term of the mortgage
• May be a good choice if you think interest rates are likely to increase in the future
• Easier to budget and plan for since the payment remains the same

Cons:

• Typically have higher interest rates than variable rate mortgages, which can result in higher monthly payments and interest costs over the life of the mortgage
• May offer limited flexibility to make extra payments or pay off the mortgage early without penalty
• May not be the best choice if you think interest rates are likely to remain low or even decrease in the future

Pros:

• Generally have lower interest rates than fixed rate mortgages, which can result in lower monthly payments and interest costs over the life of the mortgage
• May offer the flexibility to make extra payments or pay off the mortgage early without penalty
• May be a good choice if you think interest rates are likely to remain low or even decrease in the future

Cons:

• Interest rates can fluctuate with market conditions, which can result in higher monthly payments and interest costs if rates increase
• May be less predictable than fixed rate mortgages, which can make budgeting more difficult
• May be riskier for borrowers who have a limited budget or those who are not comfortable with fluctuating interest rates

As a mortgage broker, it’s crucial for me to ensure that my clients make informed decisions when choosing between a variable rate and fixed rate mortgage. Your personal financial situation, risk tolerance, and long-term goals should be carefully evaluated before making a decision.