There’s a lot to know when getting a mortgage for your home. Besides getting approved by a lender, you’ll need to decide if you’d rather have a fixed rate or variable rate mortgage. There are several factors to consider when deciding which one is best for you.
Here’s a simple explanation of both options:
The Main Difference
With a fixed mortgage, your monthly payment will never change throughout the duration of the loan. You’ll pay the same amount each month regardless if it’s a 15-year mortgage or 30-year option. With a variable-rate mortgage, you’ll pay a fixed monthly rate for the first few years then it will change based on the interest fluctuations in the market and the limitations of that loan. What makes a variable-rate mortgage so appealing is that the first few years of the loan can have a lower rate than a fixed-rate mortgage.
Factors To Consider When Choosing A Mortgage Rate
The biggest factor when deciding which one to get is how long you’ll likely live in your new home. If you plan to move again in a few years, a variable-rate mortgage might make more sense since you’ll have low interest rates in the beginning. You’ll be out of that home before a fluctuating variable starts to kick in. But if you plan on living there for a long time, a fixed-rate mortgage might be best so that you know what to pay each month.
Take into account that with a variable interest rate, your loan can one day have the maximum interest rate in the agreement. Maybe it won’t, but maybe it will.
The Predictable Option
Generally, the safer option and recommended choice is going with a fixed-rate mortgage. You’ll know what your monthly mortgage payment will be and you’ll be able to plan your finances accordingly. From a risk perspective, it makes sense. Find a monthly mortgage payment you’re comfortable with and then lock it in for 15 or 30 years.