Fixed V.S. Variable Mortgage Rates (What are the key differences?)

Buying a home is an important milestone in life and one of the biggest financial decisions that most people make. It's important to understand the differences between fixed and variable mortgage payments when considering the type of mortgage that's right for you. In this blog, we'll explore the key differences between these two types of mortgage payments.

Fixed Mortgage Payments; Fixed mortgage payments refer to a type of mortgage where the interest rate and monthly payments remain the same throughout the term of the mortgage. This means that you know exactly how much you'll be paying each month for the entire duration of the mortgage. Fixed mortgage payments are ideal for people who prefer a predictable budget and are risk-averse.

Advantages of Fixed Mortgage Payments

• Predictable: The biggest advantage of fixed mortgage payments is that they are predictable. This means that you know exactly how much you'll be paying each month, which can help you plan your budget more effectively.

• Stable: Fixed mortgage payments provide stability because the interest rate and payments remain the same throughout the term of the mortgage.

• Security: Fixed mortgage payments provide a sense of security because you know that your payments will not increase if interest rates rise.

Disadvantages of Fixed Mortgage Payments

• Higher Interest Rates: Fixed mortgage payments usually come with higher interest rates than variable mortgage payments.

• Penalty Fees: If you want to break a fixed mortgage early, you may face penalty fees. This is because the lender has to recover the interest income they would have received if the mortgage was not broken.

Variable Mortgage Payments: Variable mortgage payments refer to a type of mortgage where the interest rate fluctuates based on market conditions. This means that your monthly payments can vary throughout the term of the mortgage. Variable mortgage payments are ideal for people who are willing to take on more risk in exchange for potentially lower interest rates.

Advantages of Variable Mortgage Payments

• Lower Interest Rates: Variable mortgage payments usually come with lower interest rates than fixed mortgage payments.

• Flexibility: Variable mortgage payments provide more flexibility because you can pay off your mortgage faster if interest rates are low.

• No Penalty Fees: If you want to break a variable mortgage early, you will not face any penalty fees.

Disadvantages of Variable Mortgage Payments

• Unpredictable: Variable mortgage payments are unpredictable because the interest rate can fluctuate based on market conditions.

• Risky: Variable mortgage payments are riskier because your payments can increase if interest rates rise.

In conclusion, both fixed and variable mortgage payments have their advantages and disadvantages. It's important to carefully consider your financial situation, risk tolerance, and long-term goals when choosing the type of mortgage that's right for you. While fixed mortgage payments provide stability and predictability, variable mortgage payments provide more flexibility and potentially lower interest rates. Ultimately, it's up to you to decide which type of mortgage payment best suits your needs.

Contact me directly at gmalka@hypotheca.ca and I will gladly answer all of your questions!