As a home buyer, there are a few aspects to consider before you apply for a mortgage. And part of your affordability options should be the choice between a fixed rate and a variable mortgage. The gap between these two options has narrowed over the last decade, and fixed rate Oakville mortgages are starting to become more popular with new home buyers.
What is a Fixed Rate Mortgage?
Fixed rate mortgages offer you the opportunity to enjoy a fixed monthly payment, giving you some sort of certainty. This is a good option if you want to remain in control and know exactly what you will pay at the end of the month. If you are not sure whether you will be able to handle changes with regards to interest rates, this is a safe option to choose.
Fixed rate mortgages offer the least risk and therefore it’s a safe bet to go with. New homeowners are often encouraged to rather choose a fixed rate mortgage to ensure that they won’t be caught off-guard should interest rates spike at some point. However, you may choose a variable mortgage as well, if you are prepared to take on the possible risk.
What is a Variable Mortgage?
Variable mortgages often have lower monthly payments, which is a great benefit for many people. But the downside is that there is always risk involved. Interest rates can increase at any time and this means that your mortgage payment will increase as well. So, while you may have lower payments initially, you may also have an increase in payments at any time, and since a mortgage is a long-term commitment, it’s important to know that you can handle it.
The first thing you should do is to assess whether or not you can afford an interest rate increase. As a guide, see if you can comfortably afford an interest rate increase of around two percent, to be safe. If you can do this, you might be okay. You don’t want to be in a financial situation where you can no longer get by, simply because you need to pay your mortgage every month.
Understanding the risk involved in variable mortgages will help you to determine whether or not this is an option for you, and also how to comfortably handle it, in the event that interest rates increase. People often choose a variable mortgage rate to benefit from the lower interest rates, with the option of switching to a fixed rate when interest rates go up; but in reality, no one knows exactly when interest rates may go up, so it’s really a gamble.
If you are a new home buyer and looking to obtain an Oakville mortgage, we can help you find the right mortgage for your needs. Speak to our consultants today to help you choose between a fixed rate and a variable mortgage.