When you decide to borrow money to buy your home, a question arises inevitably: will I opt for a fixed rate or a variable rate? Whatever your choice, each rate has its advantages and disadvantages. Credit Minnie tells you more to help you find the best choice for you.
Mortgage credit: which rate to choose?
By borrowing for the purchase of your home, apartment or building land, it is a long-term loan that you make. It will take you several years to repay the entire credit. For this reason, it is important to know which rate is the most appropriate for you.
This choice is not to be taken lightly and requires careful consideration, we must inform you at best before taking out a mortgage. Also remember that interest will be payable in addition to the amount borrowed. So, for which rate to opt?
As its name suggests, this rate is fixed from the beginning and will not vary. You know from the beginning the monthly payment you will have to pay each month.
Security : as the monthly payment is fixed from the start, you are safe from any unpleasant surprises. Even if the market fluctuates, there is no risk that your rate will vary. You know from the beginning what you have to pay for how long.
Adapted when rates are low : when market rates are very low, now is the time for you to apply for a mortgage. Indeed, the lower the current rates, the lower your fixed rate.
Higher than a variable rate : the fixed rate is higher than for a variable rate.
Unable to change the rate : If you took out a loan while the market rates were high, your monthly payment will not decrease even if market rates go down. It’s always the risk when you make a mortgage. However, under certain conditions, it is possible to revise the rate downwards.
The variable rate
With a variable rate, you expose yourself to different market fluctuations. One month your monthly payment will be low and the following month it may increase accordingly.
Authorizes early repayments : unlike the fixed rate, it is possible to repay your mortgage at no additional cost. The duration of the loan and the monthly payment may be reduced depending on your financial resources.
Flexibility : during a construction or renovation, the bank transmits liquidity as and when the work progresses. As a result, you do not pay interest on unused funds.
No long-term vision : this is the unfortunate point, with a fixed rate, it is impossible to project into the future. Indeed, you do not know what monthly payment you will have to pay in the years to come or for how long.
Risk of the increase of the market rates : by opting for a variable rate, it is exposed to the fluctuation of the market. As a result, the monthly repayment may increase dramatically, impacting your budget.
Fixed rate or variable rate: the conclusions
One thing to remember: The best choice to make is based on the current market rate situation. For a very long time, the fixed rate seems the most advantageous because you know exactly what you will spend per month. On the other hand, if your financial and professional situation is likely to change in the coming years, the variable rate seems more appropriate. And as mentioned before, a fixed rate is much more suitable when interest rates are low, unlike the variable rate, more suitable when market rates are high.
Of course, different private factors are also to take charge, do not hesitate to contact us for us to discuss. Our brokers are ready to advise you on which rate is best for your mortgage.