Modern Money - Pros and Cons of a Variable Mortgage Rate

Some home owners prefer a fixed rate mortgage versus one of the variable rate products on the market today. Before you assume one is automatically better than the other, it pays to look closely at the advantages and drawbacks associated with each one. 

Variable rate mortgages can be structured in one of two ways. One is known as an open variable product. What this means is that the debtor has the option of converting to a fixed rate at any time. The second approach is a variable rate mortgage that includes a specified fixed term at the front end.  Some people choose open rate variable mortgages because they want to be prepared for any fluctuations that may occur with the prime rate.  It’s true that you do assume some risk by choosing a mortgage with a variable rate.

When the options are evaluated based on what has taken place in the real estate market in Mississauga and other major Canadian cities over the last decade, it pays to be poised to make the most of the current trend. 

This means you do need to monitor what is happening in the market, and with interest rates, and be prepared to make a change if the circumstances warrant such an action. This means if the prime rate increases and the predictions indicate the rise will continue for several years, it’s time to exercise your right to convert and lock in a lower fixed rate now. 

In the period between 2007 and 2017, homebuyers in Mississauga who opted for variable rate mortgages saved quite a bit of money in comparison to consumers who chose fixed rate mortgages. 

Should you choose to secure a fixed rate mortgage, that rate will apply for the duration of the mortgage contract. Whether the prime rate increases or decreases will have no impact on the amount you repay to the lender. That’s great if the prime rate does increase as the years pass, but it can sting a bit if the rate drops well below what you are currently paying.
Only you can decide if a variable rate is better for you than a fixed one. Work with a professional to explore different scenarios and settle on the one that seems to be best. The right choice will ultimately save you a lot of money.

Call me at 905-502-1500 for more information.
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