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Fixed vs. Variable Rate Mortgage

Fixed vs. Variable Defined

There are many mortgage options available in the marketplace.  Most financial institutions offer fixed and variable rate options.  In a fixed rate mortgage, the interest rate payable on your loan remains the same until you have fully repaid the loan or until your loan matures, whichever comes first.  In a variable rate mortgage, the interest rate payable on your loan will change, usually each time the lender’s Prime lending rate changes.  However, your regular monthly or periodic repayment usually stays the same unless there has been a substantial increase in interest rates since you first obtained your mortgage.  If the interest rate went up, a higher portion of your regular repayment will go towards paying interest than it did before.

Fixed vs. Variable Benefits

Although variable rate mortgages usually offer lower interest rates than a fixed rate mortgage, there is no universal wisdom on whether a fixed or variable rate mortgage is better.  Which to choose will depend on many factors.  If you relish in the comfort of knowing exactly what the costs of your mortgage will be during its term, then a fixed rate mortgage is probably better.  If you savor the possibility of benefiting from lower interest rates despite the potential risks of rate increases, a variable rate mortgage may be for you.  Whichever the case, explore the myriad of possibilities with your lender before your decide.


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