May 25, 2024


Mad about real estate

Fixed Rate Mortgage or Variable Rate Mortgage: Which One Is the Best?

If you’re shopping around for a mortgage loan for a new house, you might be overwhelmed by the options available for you. Some people go by blanket statements like: “fixed rate is always better”, but that couldn’t be farther from the truth. Depending on your situation, a variable rate mortgage could be better for you.

Per instance, if you are intending to stay in the same house only for a short period of time and that current interest rates are pretty low, a variable rate mortgage could be the right choice for you. However, there are still some risks associated with such mortgage loans that you should be aware of.

The most obvious risk is that you just can’t tell in which direction the interest rates will go in the future. What will happen if there’s a sudden spike in interest rates and you can’t make your payments? This is why you should be sure that you’ll be able to either repay your loan in a short period of time, preferably 5 years or less, or are absolutely sure that you’ll be able to sell your property pretty fast.

That’s the major issue with variable rate mortgages; you just never know how the housing market in your area will look like a few years from now. You might choose to go for a variable rate mortgage thinking that you’ll be able to sell your house quickly and that the value of your house will appreciate with time, but that’s not always the case.

If the market you’re in is over evaluated and the bubble bursts in the future, you’ll end up with the short hand of the stick. So make sure that you think twice about making a final decision on your mortgage.

Fixed rate mortgages are usually the best choice if you are intending to stay in the same house for a long period of time. Like the name implies, the interest rate on fixed rate mortgages will stay the same throughout the duration of the loan, no matter how high interest rates go.

While they offer security and piece of mind, fixed rate mortgages usually have higher interest rates. And if you decide to make your purchase while interest rates are particularly high and there is a sudden drop, you might regret your decision.

So there you have it. A fixed rate mortgage is not always the best choice, but it remains the safest. But if you are 100{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4} sure that your market will remain hot for a few years and that you can handle a sudden spike in interest rates, you can always consider a variable rate mortgage.