Fixed vs. Variable Mortgage Rates

July 20, 2013

Fixed vs. Variable Mortgage Rates

A common question people ask when considering home ownership for the first time is: What’s the difference between fixed and variable mortgage rates? A fixed mortgage is when the rate has been predetermined for a set period of time (usually 5 years). The benefit of being “locked” into a fixed mortgage is predictability – you know how much you’ll be expected to pay over an agreed term. However, the downside is you may end up paying more than you would have, had you gone with a variable mortgage rate. A variable mortgage rate changes over time in relation to the mortgage lender’s prime rate. Prime is the interest rate banks offer their best, most trustworthy customers – that is, the ones that are least likely to default on a loan. The benefit of going with a variable rate is that you end up paying less than what you would’ve had to pay, had you gone with a fixed rate. However, as the prime rate fluctuates month to month, so too will the amount you’ll have to pay. So which one should you choose? The only person that can decide whether a fixed rate or a variable rate is best for you, is you. A couple considerations to take into account are 1) your risk tolerance and 2) your current situation. Risk tolerance is how comfortable you feel with the possibility of taking a loss on investments. No one likes to lose money, but some people are more willing to risk it for the chance of a greater return. If the thought of losing any money at all brings on sweat and shaky hands, you have a low tolerance for risk and would probably be more comfortable with a fixed rate. Likewise, if your financial situation currently leaves little room in the budget to play with, it may not be worth the risk. On the other hand, if you’re comfortable with taking risks for potentially great financial gains, or if your income comfortably surpasses your expenses, you might want to go with a variable mortgage rate. As with most things in life, the greater the potential gain, the greater the risk. Still having difficulty deciding? Speak to a financial advisor or mortgage expert to figure out what’s best for you.

The comments contained herein are a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. This newsletter was written, designed, and produced by Lionel Khoury, for the benefit of Lionel Khoury, Investment Funds Advisor with Investia ECGI., a registered trade name with Investia Financial Services Inc., and does not necessarily reflect the opinion of Investia Financial Services Inc. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any securities. Mutual Funds are offered through Investia Financial Services Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the Fund Fact sheet or prospectus before investing. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated.