When the time comes for you to buy your first home, you’ll have a lot of decisions to make. One of the biggest ones is whether or not to get a fixed or variable-rate mortgage. Both have their pros and cons, and it can be tricky to know which one is right for you. Here we'll explain the difference between fixed and variable-rate mortgages, and which one you should opt for when buying a home.
What is a Fixed Rate Mortgage?
A fixed-rate mortgage is the traditional kind of home loan, where your monthly payments will stay the same for the entire term of the loan. This is in contrast to a variable-rate mortgage, which can change over time. With a fixed-rate mortgage, you know exactly how much you’ll be paying each month. A fixed-rate mortgage also means that you can accurately budget and plan for your monthly payments. However, you’ll have to pay a bigger deposit upfront, as you’ll be borrowing at a higher rate.
If you think interest rates are going to rise, then a fixed-rate mortgage might be the best option for you. This is because you will be able to take advantage of lower interest rates and keep your monthly repayments the same for the length of your mortgage.
What is a Variable Rate Mortgage?
A variable-rate mortgage is an option that many banks offer. It generally has a lower initial rate than a standard fixed-rate mortgage, and you have the option to switch to a fixed rate at any time. However, the rate of a variable rate mortgage can and probably will change over time, which can create uncertainty. If interest rates go up, your monthly mortgage payments will increase.
Variable-rate mortgages can be risky as you don’t know how much your monthly payment will be in the long run. If interest rates are high when you’re shopping around for rates, you’ll have the option of getting a lower rate by going with a variable-rate mortgage. And, you can always switch to a fixed rate later.
When Should You Get A Fixed Rate?
For a lot of people, the best type of mortgage is a fixed-rate mortgage. This is especially true if you’re planning to stay in your home for many years. A lot of people choose to get a fixed-rate mortgage because they’re trying to protect their investment. If you get a fixed-rate mortgage, you can be pretty confident that your interest rate and monthly payment are going to stay the same for the length of the loan.
If there’s a major economic event (like a hike in interest rates) that causes many people to re-think their mortgage, you’ll be safe with a fixed-rate mortgage. It will be easier to budget for your monthly payment and know what you have to pay each month.
When Should You Get A Variable Rate?
If you think interest rates are going to go down, a variable-rate mortgage might be the right option for you. This way, you’ll be able to take advantage of lower interest rates and pay a lower monthly payment as a result. While it might seem like a good idea to get a variable-rate mortgage, it’s important to note that you don’t know how much you’ll be paying each month. You could pay significantly less for the first couple of years and then get a large increase in your payment after interest rates go up. If you’re willing to deal with this uncertainty, a variable-rate mortgage can be a great option. You don’t have to tie yourself down with a fixed rate that might be higher than necessary.
Which Is Better: Fixed or Variable?
This one is a little tricky, and it can be hard to know for sure which option is best. If you’re thinking about getting a fixed or variable-rate mortgage, the first thing you should do is shop around and get rates from various lenders. This will help you get a better idea of which option is best for you. One major factor to take into account is risk.
If you think interest rates are going to go up, a variable-rate mortgage is a riskier option. However, if you think interest rates are going to fall, a fixed-rate mortgage is riskier. Another thing to keep in mind is how long you plan to stay in your home. If you’re planning on staying in the same home for many years, it might be a good idea to get a fixed-rate mortgage. This way, you’ll be able to plan for your future better.
Summing up
A fixed-rate mortgage is the traditional type of home loan, where your monthly payments will stay the same for the entire term of the loan. A variable rate mortgage, on the other hand, has a lower initial rate but can change over time. If you think interest rates are going to rise, you might want to go with a fixed-rate mortgage. If you think interest rates are going to fall, a variable rate might be the better option. It can be hard to know which type is best, but it can help to find trustworthy and reasonable lenders.
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