Fixed Vs Variable Mortgage Rates

Variable Rate Advantage

Variable rates are typically less than fixed rates, at least at the time you take out the loan. This can be a great help for homebuyers who are struggling to qualify for a certain home or find one in a specific community. Unlike fixed rate mortgages, which provide no flexibility, many variable rate mortgages provide different payment options, allowing borrowers to shop for variable rate mortgages that meet their specific needs. For example, a borrower with a variable income may feel more comfortable with a variable rate mortgage that not only offers a lower principal-plus-interest payment but also allows the borrower to make interest-only payments. The borrower can then pay less during slow months and more after a big paycheck. The lower payments on variable rate mortgages leave more cash available for home improvements, savings, and to cover repairs, such as a leaky faucet. The savings can also be used to pay down the principal balance.

Of course, variable rates also come with some disadvantages. Continue reading for details on this.