Variable Or Fixed Rate Mortgage, Do You Know Which One to Choose?

Whether you need a new mortgage or your mortgage is coming for a renewal, you will need to decide which kind of mortgage to choose.
Fixed rate mortgage gives you the comfort of knowing that your payments and interest rate will stay the same throughout the term of the mortgage. It will allow you to budget and give you peace of mind.
On the other hand the variable rate mortgage will offer you a lower interest rate, the savings are very obvious and you can see these savings beginning the very first payment. Not only that, if the rates go down you will benefit even more while the fixed rate mortgage will not allow you to take advantages of the dropping interest rates. These obvious benefits come with a risk-the risk that the fixed rate mortgage does not share. There is always a risk that the rates may go up and either you will pay a lot less towards principal or the stage may even reach that your payments may not even cover the interest payments. While in many variable rate mortgages the payments remain the same while the rate fluctuates, in rare cases, where, the monthly payments may be adjusted to reflect steep increase in interest rate (you must check the mortgage documents, carefully to confirm that, in a credit line set up where the monthly payments are geared to interest rates, the monthly payments definitely change with interest rates), it could really mess up your finances.
It must be pointed out that the variable rate mortgages do offer the option to convert your mortgage to a fixed rate mortgage in the event rates start creeping up and you begin losing sleep. But many find making this decision even more difficult when under financial pressure.
Confused, well you are not alone. If it is of any comfort most of the borrowers are! Nevertheless, once you have the relevant information, you will be able to make a calculated move based on your tolerance of risk and personal financial situation.
There is enough evidence that variable rate mortgages do save money to the consumer. Based on a statistical study done, at York University, of the mortgage rates between year 1950 and 2007, choosing a variable rate mortgage would have saved over $20,000 dollars over a period of 15 years. This figure is based on when a fixed rate $100,000 mortgage was compared with a variable rate mortgage. Obviously, the savings would have been much greater for a bigger mortgage. During this time, even though rates spiked several times, Canadians with variable rate mortgage would have been better of 89% of the time over a fixed rate mortgage.
So, which kind of mortgage are you going to choose? If you want to choose a variable rate mortgage, you must be comfortable with the interest rate fluctuations and be able to tolerate up to 20% variation in your mortgage payments and have other financial resources to draw upon when needed...
If you are of worrying type and have no tolerance for risk, the variable rate mortgage may not be for you.
For further details, you may wish to visit their website http://www.MortgageByChoice.com or contact them at 416-630-1999 / 905-660-7999 / 1-866 890 1999 or by email biztrackers@hotmail.com.
Author: Nawel K Seth, MBA
The author, Nawel K Seth is a veteran in the field of mortgages, and is a regular contributor of articles on the web.
He holds multiple post graduate degrees from prominent North American universities. He has over 40 years diversified field experience and a distinguished career as a businessman, and a marketing consultant.
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