When it comes to choosing a mortgage, borrowers in Canada have two main options: a fixed rate mortgage or a variable mortgage. But which type is best for you? Here, we’ll take a look at the pros and cons of each type to help you make an informed decision.
Fixed Rate Mortgages
A fixed rate mortgage is a home loan in which the interest rate remains the same throughout the term of the mortgage. This means that the monthly payment will also remain the same, providing predictability and stability. Here are some of the pros and cons of fixed rate mortgages:
- Pros:
- Predictable monthly payments
- Protection against rising interest rates
- Simplicity and ease of budgeting
- Cons:
- Higher interest rates compared to variable mortgages
- No potential for savings if interest rates go down
Variable Mortgages
A variable mortgage is a home loan in which the interest rate can fluctuate over the term of the mortgage. This means that the monthly payment can change, depending on changes in the market interest rate. Here are some of the pros and cons of variable mortgages:
- Pros:
- Potentially lower interest rates compared to fixed mortgages
- Potential for savings if interest rates go down
- Flexibility to switch to a fixed rate mortgage if interest rates rise
- Cons:
- Unpredictable monthly payments
- Risk of higher payments if interest rates go up
- Possible difficulty qualifying for a variable mortgage
Which Type of Mortgage is Right for You?
Ultimately, the decision between a fixed rate and variable mortgage comes down to your individual circumstances and financial goals. If you want the predictability and stability of a consistent monthly payment, a fixed rate mortgage may be a good option. If you’re willing to take on the potential risks in exchange for the potential savings of a lower interest rate, a variable mortgage may be the way to go. Be sure to carefully consider all the factors and do your research before making a decision.