Pros And Cons Of Fixed Vs Variable Mortgage Rates

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After you have finally taken the decision to go for the purchase of a particular property, the next important decision you have to take is about the Mortgage Loan. There are different banks and financial institutions offering different types of products. It is always advisable to go through the term of your mortgage and conditions of the loan of the banks and institutions to come to a conclusion. If you are interested in comparing fixed and variable mortgage rates and conditions from their respective websites, you can also do so. You may also get the reviews by customers about their experiences regarding fixed and variable mortgage rate drivers.

The interest rate can be fixed or variable. As in any other financial product, here are also some pros and cons of whichever rate you choose.. The main advantage of the fixed rate is that you know at the time of taking the mortgage, the monthly amount you have to pay during the whole term of the loan. You can prepare your monthly budget with certainty as the monthly outflow towards repayment of the loan is known to you. For this advantage, more that 65% of the people taking loan in Canada go for the fixed rate.As the rate of interest in Canada is quite low and there is hardly any movement in the rate, people are finding fixed rate to be preferable. You can give a standing instruction to your bank to transfer the fixed amount from your account to the institution from where you have taken the loan.

If you opt for the variable rate of interest, you go with the clear idea that the rate would vary during the tenure of the loan repayment. So, you cannot give instruction to your bank for a fixed monthly payment. But one advantage of variable interest is that you start with the rate of interest which is lower than the rate which you have to pay for the fixed rate. You may call this as return for the risk you have taken in going for the flexible rate.The amount you save due to this difference in the rate may add up to a good amount depending on the amount and term of the loan.

The variable interest rate varies with the market. The rate in the market mainly depends on the prime rate fixed by Bank of Canada.

As we have already discussed, record in the Canadian market shows the incremental rate of interest in case of fixed compared to variable can be seen from the following chart:

Year Variable Interest Rate Fixed Interest Rate
2017 1.70% 4.64%
2016 2.70% 4.66%
2015 2.79% 4.67%
2014 3.00% 4.91%
2013 3.00% 5.23%
2012 3.00% 5.27%
2011 3.00% 5.40%
2010 2.60% 5.75%
2009 2.42% 5.47%
2008 4.79% 7.10%
2007 6.18% 7.30%

 

So, the people who went for variable rate gained in the bargain, but that may not happen in the upcoming years too.

If you are confused about which type of rate to opt for, all you have to do is visit www.ratetrade.ca. It helps you choose the lowest mortgage rate based on your location and term of loan.

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