Fixed Vs Variable Mortgage Rates

Choosing Between Them

One key question to ask when considering a variable- or fixed-rate mortgage is how long you plan to reside in the home. If you are buying the home you want to raise your children in, a fixed rate loan provides the security you need. A sudden rise of several hundred dollars or more per month may prove a strain, and rising taxes or other expenses may increase the burden. For individuals wanting to live in a home for just a few years, a variable rate mortgage may make more sense, as the higher fixed rate is essentially a premium for long-term stability. If you plan to move in two years, there is no long-term, so saving the money may make sense, especially if it allows you to buy a property that provides significant appreciation. However, before taking out a variable rate loan, make sure you can handle the payment increases in case your plan to move in a few years changes.

The interest rate environment also matters when choosing between them. With low rates, fixed rate mortgages are more attractive. In a high rate environment, locking in a fixed rate could be a mistake, even for the long-term buyer. If you feel rates will decrease, a variable rate mortgage is the way to go.