If you’re trying to decide between a fixed or variable mortgage rate, you need to look into the advantages and disadvantages of each option so that you can make an informed decision. If you’re not sure which way you should proceed, the following guide will help you weigh the benefits and risks associated with each option.
Variable rates are usually lower than fixed rates, so those who choose this option will save money right from the start and because variable rates can be converted to a fixed-rate at any time, you will have options if you change your mind. While there is always the risk that variable rates might increase, it is not likely that these rates will rise, so you will have peace of mind for the next couple of years knowing your rate will remain steady. This means that variable mortgage rates are not only cheaper, but they are more flexible as well, so it is an option that you can definitely consider.
Despite such advantages, most borrowers will still choose a fixed rate because even with the low risks, they cannot get over the fact that risk is very much involved. It’s natural to consider this aspect when making a financial decision of this magnitude and variable rates make a lot of borrowers uncomfortable. This is especially true because of the pandemic and the economic uncertainty it has caused, so it makes sense that people are careful and fixed rates tend to be safer if you are concerned in this regard. If you’re the type of person who will lose sleep at night worrying about rising rates, a fixed rate is definitely a better option because it will allow your mind to relax. Fixed rates are definitely more popular but before you jump into this option, it would be wise to take a closer look at both options so that you make the right choice.
If you can handle a little bit of uncertainty, variable rates are worth considering and most people are unaware of the fact that five-year variable rates actually outperformed five-year fixed rates these past several years, even when the variable rate rose above the fixed-rate equivalents for certain periods of time. Despite this rise, variable rates still ended up costing less when you calculate the information over the full five years, so variable rates do have a cost advantage over fixed rates that push the odds in their favour most of the time. It’s also important to understand that five-year fixed rates do have risks as well, so it’s a must that you understand these details so that you can make the right decision moving forward.
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