Deciding whether to get a fixed or variable rate mortgage is a big decision for a home owner. Mix in these recent skyrocketing interest rates and inflation that we’ve been experiencing in 2022 and home owners are faced with the difficult decision of deciding which way to go.
So how does one decide? Firstly, let’s differentiate between the two. A fixed mortgage is a loan where the set rate of interest doesn’t change and the mortgage payments will stay the same. A variable mortgage is a loan with an interest rate that can fluctuate and monthly payments can change frequently. With fixed, it doesn’t matter if interest rates go up and down, you will always be paying the same every month. On the other hand, variable is appealing because the interest rates are typically lower than those on fixed-rate mortgages.
As rates are going up, is a variable or fixed-rate mortgage better? Generally speaking, there are many factors at play and it is very client specific. We are anticipating rates to drop in 2024, so if you are in a variable mortgage, you will benefit from that interest rate decrease. If you are currently in a variable or thinking about variable, you can ride out the storm in hopes of getting the interest rate decrease. Alternatively, if you’re in the market for purchasing right now and you’re trying to decide between the two, you could take a one or two year fixed term which allows you to ride out this increasing market and then take a five year variable.
Interest rates can change at ANY time so it really is the toss of the coin. There is no right or wrong answer but a simple way to look at it is if you want that peace of mind and to not worry about your mortgage rates changing, go with the fixed mortgage for that consistency. If you believe rates will drop and are comfortable with a little unpredictability, choosing a variable mortgage could be your way to go.