The Great Debate: Fixed-Rate vs Variable-Rate Mortgage

The Great Debate: Fixed-Rate vs Variable-Rate Mortgage



if you're applying for a mortgage one questions bound to come up the variable rate or fixed rate the great debate it's a choice that will determine how much your mortgage cost you over time and I'm here to help you think through it here's the gist of it with a variable rate mortgage the interest rate can change with a fixed rate mortgage there are no surprises it could be a bit more expensive but the interest rate won't change on you during your term there is at least one thing the two mortgage types have in common the amount that you were expected to pay each month usually stays the same so you can plan your budget and know what to expect got that let's roll up our sleeves here now let's take another look at variable rate mortgages here the interest rates that affect how much your payment's chip away at your debt can change at any time what may change with a variable rate mortgage is how much of your payment goes towards reducing the amount you still owe a change in a variable rate mortgage means a change in how much of your payment goes to paying the interest versus what goes towards paying what you owe higher rates means more goes towards paying the interest and less towards paying the mortgage back once and for all if you don't mind a little risk and can stomach the ups and downs this might be the mortgage for you when your variable rate goes down less of your payment goes to pay interest and more of your payment goes to paying your mortgage down faster you win when they go up well that's when you wish you had a fixed-rate mortgage with this kind as the name suggests your interest rate is fixed for the term of your mortgage locked in if you're not in a risk or don't want the interest rate guessing game then a fixed rate mortgage might be the way to go now you're probably thinking hey I can't predict what will happen interest rates in 20 years no worries most people set up their mortgages so they can pay it back over 25 years but are divided into smaller portion mortgage terms five-year term mortgages are the most common at the end of each term you can switch between fixed and variable rates and negotiate other rates to your mortgage for your next five-year term so to recap if you don't mind living on the edge and like a little risk in your life a variable rate mortgage might be your best bet but if you're a stickler for stability and don't care for the ups and down think about a fixed-rate mortgage but don't just take my word for it talk to an HSBC mortgage specialist they can help you settle this debate once and for all