Abbotsford and Chilliwack fixed vs variable rate mortgages


The debate over fixed rate and variable rate mortgages before you take out a mortgage for your new Abbotsford and Chilliwack home should be about more than the stated interest rate. Let’s look at the pros and cons of both types of mortgages, so that you can find the right one for you.


Advantages of Variable Rate Mortgages

Variable rate mortgages often come with lower initial interest rates compared to fixed rate mortgages, as the banks are not at risk of losing out if market interest rates rise. These mortgages might include a set minimum monthly payment, ensuring a consistent reduction in both interest and principal. The lower initial rate can facilitate easier qualification for the mortgage, particularly when market rates are low, making them attractive to new homebuyers.

An adjustable rate mortgage is also a viable option if you have less-than-perfect credit that’s improving. It allows you to start building home equity immediately, with the flexibility to convert to a fixed rate mortgage later, securing a competitive interest rate. For instance, you might start with a variable rate and then switch to a fixed rate after a couple of years. At the time of renewal, consulting with a mortgage expert like Jodi Smith at Whalen Mortgages Abbotsford and Chilliwack can help you assess whether to continue with a variable rate or switch to a fixed rate.

Challenges of Variable Rate Mortgages

Variable rate mortgages carry the risk of increasing payments if interest rates rise. This was evident a few years ago when many homeowners struggled with payments after rate hikes, particularly those who couldn’t refinance into fixed rate mortgages due to poor credit or short-term living plans. The introduction of the mortgage stress test was a response to such scenarios, aiming to prevent foreclosures due to unaffordable rate increases.

With variable rate mortgages resetting periodically, payments can fluctuate based on economic factors, which may add stress and uncertainty for some homeowners in Abbotsford and Chilliwack.

Advantages of Fixed Rate Mortgages

The main benefit of fixed rate mortgages is predictability. Your monthly payment remains constant, facilitating budget planning. Most lenders offer fixed rate mortgages, fostering competitive rates. The uniformity in this market also makes it easier to compare mortgage options. Fixed rate mortgages are simpler in terms of contract and financial planning, allowing for straightforward calculations on long-term savings from additional principal payments.

Short-term fixed rate mortgages offer some of the benefits of adjustable rates but with added stability. Options range from one to five years, with some lenders offering only longer-term variable mortgages.

Challenges of Fixed Rate Mortgages

A downside to fixed rate mortgages is the lack of flexibility when interest rates fall; you remain locked into your original rate. Refinancing to take advantage of lower rates can be costly, especially if not timed with the mortgage renewal. The cost of refinancing a fixed rate mortgage is typically higher than with a variable rate mortgage.

In conclusion, both variable and fixed rate mortgages have their distinct benefits and challenges. It’s crucial to consider your financial situation, risk tolerance, and long-term goals when choosing between them. Consulting with a knowledgeable mortgage broker like Jodi Smith at Whalen Mortgages Abbotsford and Chilliwack can provide valuable guidance in selecting the best mortgage option for your needs.

Whalen Mortgages your trusted Abbotsford and Chilliwack Mortgage Brokers works with lenders other than the big banks to offer you solutions.

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