When shopping for a mortgage, you’re faced with many financial questions including whether you want a fixed or variable interest rate! Let’s talk about the major difference between the two and which kind of interest rate works best for you and your financial situation!
Fixed Interest Rates
It’s exactly how it sounds–your interest rate is set for the entire term of your mortgage! For example, when you have a 5-year fixed rate, your interest rate and mortgage payments will be the same for the 5 year duration. This is most common for those who appreciate the stability in a static, predictable payment. Regardless of the market fluctuation, you can rest assured knowing your mortgage payment will not be affected by the market.
Variable Interest Rates
A variable interest rate is a rate that simply fluctuates with the market trends. There’s a higher financial risk when it comes to variable mortgages, however you can also reap the rewards! If the prime rate goes up, your interest rate will increase with it. If the prime rate trends down, your interest rate will decrease with it. If your financial stability allows for the risk, a variable interest rate has proven to be less costly than fixed rates because you’re not paying for the security or protection.
Your new home is likely the biggest investment you’ll ever make. That’s why your interest rate plays such an important role when it comes to your new home purchase. The smallest differences between mortgages and interest rates can result in huge savings (even over the course of a five-year term)! Comparing interest rates and keeping track of the prime rate increase is essential if you’re looking to get mortgage approved and new home ready.
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