Differences Between Variable and Flat Rate Mortgages
When it comes to choosing a mortgage, understanding the difference between variable and flat rate options is key to making an informed decision.
Variable Rate Mortgage
- Interest Rate Fluctuates: The interest rate can change based on the prime rate set by the Bank of Canada. This means your payments could increase or decrease over time.
- Potential Savings: If interest rates go down, you could save money on interest payments.
- Risk of Increasing Rates: There's a risk that rates could go up, leading to higher payments.
Benefits of Variable Rate Mortgage:
- Lower Initial Rates: Often starts with a lower rate compared to fixed-rate mortgages.
- Flexibility: Potentially lower penalties for breaking the mortgage.
Flat Rate Mortgage
- Fixed Interest Rate: The interest rate remains the same throughout the term of the mortgage.
- Consistent Payments: Payments remain stable, which makes budgeting easier.
- Protection from Rate Increases: Offers security against potential increases in interest rates.
Benefits of Flat Rate Mortgage:
- Predictability: Provides financial stability with predictable payments.
- Peace of Mind: Protects against fluctuations in interest rates, ensuring consistent costs over the mortgage term.
Choosing between a variable and flat rate mortgage depends on your financial situation, risk tolerance, and economic conditions. Always consulting with a financial advisor to choose the best option suited for your needs.
