If you’re purchasing a home or renewing your mortgage in the near future you may be wondering “should I get a variable or fixed rate mortgage?”. Almost every home buyer has asked themselves this question at one point.
Some studies have shown that choosing a variable rate will save you money 90% of the time.
But what about the other 10% who saved by choosing a fixed rate mortgage?
The decision can be tough, but our team of Kelowna mortgage broker experts at John Antle Mortgages are here to help you pick your best rate. Keep reading to learn about the following:
- Variable Rate Mortgages: Advantages and Disadvantages
- Fixed Rate Mortgages: Advantages and Disadvantages
- Should You Get a Variable Or Fixed Mortgage?
- Can you switch between fixed and variable?
Variable Rate Mortgages
Based on the statistic that 90% of homeowners save money with a variable rate, you may be thinking your decision has already been made.
While there are some definite benefits to picking a variable rate mortgage, there are some drawbacks you should be aware of to ensure you’re making an informed decision.
Variable rate mortgages are based off a lender’s prime rate, meaning it’s subject to change. This is great if the prime rate decreases because it means you could be paying less for your home in any given month. However, the opposite is also true. If prime rates increase, you could be paying a lot more.
Since you aren’t locked into a time frame with a variable rate mortgage, you can leave or change your mortgage early if the rate increases substantially. If you decide to leave or change your mortgage early, the penalties are minimal.
Variable rates are more of a gamble than fixed rates. Historically, they’ve offered lower interest rates than fixed rates. However, the rate that the banks advertise, known as the ‘posted rate’, isn’t always the best rate you’re able to get. In fact, this is just a starting place to bargain for a better rate.
If finding your best rate at a multitude of different lenders seems overwhelming, you may want to consider working with a Kelowna mortgage broker who can help you shop, negotiate and find your best rate possible.
Fixed Rate Mortgages
A fixed rate mortgage means that you’ll agree to a predetermined rate set over a period of time. Meaning, no matter what happens to the prime rate, you’ll be paying the exact same amount for your home every month.
A clear advantage to a fixed rate mortgage is that it’ll be a whole lot easier to budget your life. It saves you the hassle of reorganizing your finances every month as it will be the same each month. Fixed rates can also give you peace of mind since you’ll never be worried about your mortgage rate increasing.
One downside to fixed-rate mortgages is that you’re locking in for a number of years. Exiting your contract earlier may have a steeper penalty than a variable rate mortgage agreement.
Is Fixed a or Variable Rate Mortgage Better for You?
Deciding if you should choose a fixed or variable rate mortgage can be a tough decision. Kelowna Mortgage experts recommend taking a look at your personal financial situation and determining if the risk of a variable rate mortgage is right for you. While there is a chance you could save, you should ensure you’re in a secure enough financial position that a drastic increase in the prime rate won’t devastate your financial situation.
The prime rate has been steadilly increasing the past few years, with experts predicting it may continue to do so. Since July 2017, the rate has been raised by a quarter of a percent four times for a total of 1.5%.
The central bank’s tax rate increases have caused the big banks to raise their rates as well, which is another reason you may want to work with a mortgage broker like John Antle. Our team of mortgage experts can help you find your best rate from a multitude of lenders, not just the big banks.
If you’re considering it, check out our previous blog on Three Things a Mortgage Broker will do for you That a Big Bank Won’t.
Can You Switch Between Fixed and Variable Mortgage Rates?
If you’re reading this and you’re thinking your current mortgage rate isn’t the right one for you, don’t panic! You do have the ability to change your mortgage agreement.
Since fixed-rate mortgages lock your mortgage rate and contract in for a set period of time, there may be a bigger penalty for exiting your current agreement. However, some lenders will let you add this expense to your new mortgage agreement, costing you very little if your new mortgage agreement ends up saving you more. Contrastingly, switching from a variable rate to a fixed rate may be easier, and less expensive.
Kelowna Mortgage Broker
If you need help navigating the complexities of fixed vs variable rate mortgages and every other detail with your mortgage, the friendly and experienced team at John Antle Mortgages would be happy to help.
In addition to helping you decide whether fixed or variable rates are best for your personal situation, we can help you find your lowest rate possible for a multitude of lenders. This means you’ll have more flexibility.
The team here keeps your best interests in mind and would be happy to help you find your best possible mortgage options.