Fixed vs. Variable Rates
Fixed Rates Mortgage
This type of mortgage is set for the duration of the mortgage term. Mortgage interest rate and payments are fixed. You can essentially ‘set it and forget it’, regardless of whether rates rise or fall. It is extremely easy to budget for this type of mortgage and it also offers stability.
However, if the difference between the variable and fixed rate is significant, it may not be worth paying a premium for the stability protection of a fixed rate.
Variable Rate Mortgage
This type of mortgage fluctuates with the market interest rate, known as the ‘prime rate.’ Mortgage payments either fluctuate with fluctuations in the prime rate, or the interest portion of the payment varies. If you look at historical rates, variable rates have proven to be less expensive over time.
Consider the financial uncertainty: significant increases in the prime rate will increase your interest payable and, thus, financial burden.