A Variable Or Fixed Rate Mortgage: Which Is Right For Me?
If you are rate shopping, you’ll notice that the lowest available rate will be for a variable mortgage. Which is why I am often asked: “What does variable mean, and how is it different from a fixed-rate mortgage?”
As a licensed mortgage broker in Vancouver, BC, I, Rowan Smith Mortgage Broker - City Wide Mortgage Services, understand the complexities of choosing the right mortgage for your unique financial situation. One of the most critical decisions you’ll make when securing a mortgage is whether to opt for a variable or fixed rate. In this blog post, I’ll break down the differences between these two types of mortgages and provide guidance on how to choose the best one for you.
1. Understanding Variable Rate Mortgages
Variable-rate mortgages have an interest rate that fluctuates based on market conditions. Here are some key features:
- Allows you to ride the rates down in a time of declining rates.
- Payments may go up in times of rising rates, depending on the institution.
- Usually lower than fixed rates (not currently).
The potential for lower interest rates can be attractive to borrowers who are comfortable with the risk of fluctuating payments. If you can stomach potential rate increases, a variable rate mortgage may be a suitable option.
2. Understanding Fixed Rate Mortgages
Fixed rate mortgages offer a consistent interest rate throughout the term of the loan. Here are the primary benefits:
- Fixed payments and fixed rate the entire term.
- If rates go down, you cannot get out without paying a penalty.
- Provides confidence in monthly payments.
For borrowers who value stability and the ability to budget for a consistent monthly payment, a fixed rate mortgage may be more appealing.
3. Evaluating Your Risk Tolerance
An essential factor to consider when choosing between a variable and fixed rate mortgage is your risk tolerance. Variable rate mortgages can be unpredictable, whereas fixed rate mortgages provide more certainty. It’s crucial to have an in-depth discussion with your mortgage broker to determine if you have the “stomach” for variable rates.
4. Assessing Current Market Conditions
While it’s widely thought that rates will go down in the future, there’s no guarantee. Peace of mind currently comes at a discount, with fixed rates at 4.79% and variable rates at 5.45%. By choosing a fixed rate, you might “sleep better at night,” knowing your payments will not change.
5. Evaluating Your Financial Situation
If you opt for a variable rate mortgage, you need to be confident that you can afford the payments as they currently are, as well as potentially higher. If not, a fixed rate mortgage may be a more suitable choice.
When it comes to choosing between a variable and fixed rate mortgage, there’s no one-size-fits-all answer. It’s essential to evaluate your financial situation, risk tolerance, and the current market conditions before making a decision. As a seasoned mortgage professional, I’m here to help you navigate this process and make the best choice for your unique needs.
If you’re looking for a mortgage broker in Vancouver, BC, reach out to me at Rowan Smith Mortgage Broker - City Wide Mortgage Services. As a leading mortgage broker, I have access to ways to get a second mortgage, thereby preserving your (likely) lower rate on the existing mortgage. I can still get you money, even when the bank says “no.”