Fixed Rate or Variable Rate?
Are you trying to decide on your mortgage and are confused by the different rates and how do you chose the right one?
Here's some information to help you choose.
FIXED RATE MORTGAGES
Predictable payments: With a fixed rate mortgage, your interest rate and monthly mortgage payments remain the same throughout the fixed term, (which typically ranges from two to ten years). This predictability can help with budgeting and financial planning.
Protection against interest rate increases: If interest rates rise during your fixed term, your mortgage rate remains unchanged. This stability shields you from potentially higher payments, providing peace of mind and stability.
Easier to plan long-term: Fixed rate mortgages are particularly suitable for those who prefer a steady, consistent payment structure over the long term. They are beneficial if you have a fixed income or want to avoid the risk associated with fluctuating interest rates.
Limited flexibility: While fixed rate mortgages offer stability, they usually come with limited flexibility compared to variable rate mortgages. If you want to remortgage or make changes to your mortgage during the fixed term, there may be penalties or restrictions involved.
VARIABLE RATES
Potential for lower initial rates: Variable rate mortgages typically start with lower interest rates than fixed rate mortgages. This lower rate can be advantageous in the early years of homeownership, especially if you plan to sell or remortgage before any significant rate increases occur.
Potential for savings during low-interest rate periods: If interest rates drop, your variable rate mortgage payments can decrease, resulting in potential savings. This flexibility allows you to take advantage of favourable market conditions.
Option to remortgage without penalties: Variable rate mortgages often offer more flexibility when it comes to remortgaging or making changes to your mortgage terms. You can typically switch to a fixed rate mortgage or change lenders without incurring penalties.
Uncertainty with interest rate fluctuations: Variable rate mortgages expose you to the risk of interest rate increases. If rates rise, your mortgage payments can increase, potentially affecting your budget and affordability. This uncertainty can make it more challenging to plan long-term.
Choosing between fixed rate and variable rate mortgages depends on your financial situation, risk tolerance, and personal preferences. If you value stability and want to budget with certainty, a fixed rate mortgage may be more suitable. On the other hand, if you're comfortable with potential rate fluctuations and want flexibility, a variable rate mortgage might be the better choice.
It's recommended to consult with a mortgage advisor to assess your individual circumstances and make an informed decision. It will also be dependent on the economy at the time and your advisor should be able to assist in explaining how the economy is performing and performance predictions going forward.
