Fixed or variable, that is the question. Already said Shakespeare. Kind of.
Honestly, the question of the type of interest rate to take is one of the oldest questions since we can borrow. And each of these rate types has advantages and disadvantages that can influence your final decision.
Here is an overview of the main differences between fixed and variable rates.
Fixed rates:
In a few words, fixed is synonymous with security. As the rate does not move, the payment will not move either. It is a choice that leans towards stability.
Pros
Predictability: You know exactly what you pay each month. No surprise for your budget!
Stability: Fixed rates do not fluctuate, so it’s not affected by increases!
Rate freeze: You can choose the term, i.e. the duration for which you freeze your rate!
Cons
Higher: In general, fixed rates are higher than variable rates, so you pay more interest.
Penalty: If you break the mortgage before the term, the penalty will be higher.
Less flexible: If rates go down, unfortunately you won’t benefit! You will therefore have to wait until the end of the term.
Variable rates:
Variable and variation do indeed have the same root! It is a product that moves with the fluctuations of the market and the economy. If we had to sum it up in one word, we could say that the variable rate is flexible.
Pros
Lower penalty: If you break the mortgage before the term, the penalty will be only 3 months of interest.
Flexible: If you need to make changes or move to get an extra discount, it’s easy to get out of your variable loan.
Lower: Historically, variable rates have almost always been lower than fixed rates.
Cons
Stability: Rates may vary depending on the market. They can go down as they can go up.
Predictability: Nobody has a crystal ball to know how the market will vary over the years. So be prepared to risk a little more.
Management: Having a variable rate requires being a little more active in managing your loan.
What is the correct answer?
If you thought you got the right answer about which product is better after reading this, we’re sorry, but we don’t have an answer! Everything is a question of circumstances and needs that only your mortgage accomplice can help you analyze.
That’s why you need to meet him right now!
