Should You Choose a Fixed or Variable?
When you borrow money, you may have a choice between a fixed-rate loan or a variable-rate loan. Read on to find out how to choose which one is right for you.image source: getty images.
We discuss the differences between fixed and variable interest rate mortgages and their pros and cons. One of the biggest decisions you face when choosing a mortgage is whether you should go for a fixed or variable rate. On the one hand, it’s hard to argue with the certainty and stability of a fixed rate.
Interest-Only HELOCs Explained On the other hand, while a wide range of mortgages – including both traditional 15- and 30-year mortgages, intra-family interest-only balloon loans and even HELOCs used to build an addition – can.
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The consideration between choosing a loan with a variable or fixed interest rate becomes even more important the longer the duration of the loan is. When you should choose a loan with a variable interest rate. If you have a variable interest loan, you will pay less interest at the point in time you take the loan.
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If you choose a two-year fixed rate, for example, your rate is fixed for two years and at the end you’ll go onto the lender’s standard variable rate (SVR). The mortgage illustration you’ll be given by the lender or broker will tell you what today’s SVR is.
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The difference between choosing a fixed or variable rate is about allocating the interest rate risk between the two parties. If you accept a variable rate, you’ve agreed to take on the risk of interest rate fluctuation in the future. If interest rates go down, you’ll reap the benefit of taking on this risk.
(See also: 5 Things Our Realtor Told Us That Weren’t True) Before you begin the process, make sure you understand your mortgage choices, and choose what is likely to work best for you. Fixed-rate.
Should you choose a fixed or variable mortgage? Here are four broad considerations: First, how long do you plan to stay in the home? If you plan on living in the home a short time before selling it, you may want to consider a variable-rate mortgage. With a shorter time frame, the loan will have less time to move up or down.