The Fixed Rate or Adjustable-Rate decision is one of the most important homeownership decisions a borrower will make when selecting their mortgage.
It is a decision that will affect a homeowner for years to come and could be the difference in literally thousands of dollars of the interest cost.
In 2021, as the impacts of coronavirus sweep through the US economy, we will see that although fixed rates are now at all-time lows and are a fantastic solution for many, the answer for most potential buyers’, is still variable.
If this is all you need to make a quick and critical decision, then great. You should do well with this advice. However, for those who would like to see the compelling reasons why, at this specific point in history, the variable rate makes more sense than fixed for most people, then I invite you to give one of our Mortgage Planners a call.
Fixed Rate Mortgage:
The interest rate for a fixed rate mortgage is locked in for the full term of the mortgage. Payments are set in advance for the term, providing you with the security of knowing precisely how much your payments will be throughout the entire term. Fixed rate mortgages can be open (may be paid off at any time without breakage costs) or closed (breakage costs apply if paid off prior to maturity).
With an Adjustable-Rate mortgage, mortgage payments are set for the term, even though interest rates may fluctuate during that time. If interest rates go down, more of the payment is applied to reduce the principal; if rates go up, more of the payment is applied to payment of interest. Adjustable-Rate mortgage may be open or closed.
An Adjustable-Rate mortgage provides you with the flexibility to take advantage of falling interest rates and to convert to a fixed rate mortgage at any time.
Interest rates and how they are factored into your mortgage agreement have a direct impact on how much money you are going to be paying each month. That is why you cannot go wrong learning about the different mortgage types that might be available to you.
The fixed-rate or Adjustable-Rate mortgage debate may not necessarily be settled, but now you know exactly what an experienced Mortgage Planner is talking about when you hear the terms “fixed-rate mortgage” and “Adjustable-Rate mortgage”.