Dominion Lending Edmonton: Variable Rate vs Fixed Rate
2017-01-10 | 11:40:13
Dominion Lending Edmonton – John Beard
As a mortgage broker part of the Dominion Lending Edmonton team, I am committed to helping my clients find the right mortgage – no matter what their specific situation is.
When clients come to me to obtain a mortgage, they are faced with the option of choosing between two types of rates: a variable interest rate or a fixed interest rate.
Each type has their own benefits and downfalls, and the choice should be made solely on what your unique situation requires and what your personal preference is. To help you get a better understanding of what each is, who it’s an ideal fit for and why it may be good for you, I’ve outlined some information for you to reference when you’re making the decision if you're looking to get a mortgage in Edmonton.
Also known as an adjustable rate, variable mortgage rates are designed to adjust from time to time based on the market conditions. A variable rate will fluctuate with the current rates of the market and thus end up being lower than a fixed rate. However, should the normal market rate increase, so will your variable rate.
This type of rate is attractive because it can be lower than a fixed rate. When the rate drops, more of your payments will go towards the principal amount of your mortgage rather than to interest, thus shortening the amount of time it takes to pay off your mortgage. However, this works both ways. On the other hand, the rates could rise and as a result, extend the time it takes to fully pay off your loan.
One way for you to determine if a variable rate is right for you is to see if you would be able to afford an increase in the interest rate. Evaluating factors such as income, expenses, and potential earnings should all be considered during this time.
Pro: Have proven to be less expensive than fixed rates over time
Con: Financial uncertainty
A fixed mortgage rate is essentially the opposite of a variable rate. Fixed rates are locked-in at the rate that you and a lender agree on for the duration of your term.
The biggest attraction to fixed rates is the ability to accurately and comfortably budget. With a fixed rate, a person will know exactly how much they will be paying each month and when they can expect their mortgage to be fully paid off.
A fixed rate is popular for people who prefer to know how much they are going to be paying and do not wish to risk things. Even if the prime interest rate rises, you will still be locked in at the rate you originally received.
Pro: Don’t have to worry about what you will be paying each month
Con: Prime rate could drop lower than fixed rate and end up being more expensive
In the end, the decision is yours. Are you more of the risk-reward type? Or, are you the kind of person who prefers the comfort of knowing the exact amount you will be paying in interest each month?
As a broker part of the Dominion Lending Edmonton team, I am here to help you make the decision that best fits your lifestyle. Whatever your mortgage needs require, I can guide you. For more information on how I can help, contact me today!