The decision to choose a fixed or variable rate is not always an easy one. It should depend on your tolerance for risk as well as your ability to withstand increases in mortgage payments.
Variable rates may offer potential savings compared to fixed rates, but the actual benefit will vary depending on changes in the economic environment.
A fixed-rate mortgage provides stability, with payments that stay the same for the length of your term. This option often appeals to homebuyers who prefer predictable payments, are working within a tighter budget, or want peace of mind knowing their rate won’t change.
A variable-rate mortgage is tied to a lender’s prime rate, plus or minus a set percentage. This means your rate can fluctuate over time. For example, if the lender’s prime rate is 5.5% and your mortgage is prime minus 0.5%, your interest rate would be 5.0%. While variable rates can sometimes offer savings when rates are lower, they also carry the risk of increases if the prime rate rises.
Every client’s situation is unique. The right choice depends on your goals, financial comfort level, and tolerance for risk. A conversation with your mortgage professional will help you understand the advantages and potential drawbacks of each option so you can make an informed decision.