Fixed rates are often considered less risky but variable rates could cost you less. So which type of interest rate should you choose?

The decision between a fixed and variable rate will depend on your personal profile and what you're looking for in terms of ensuring stability or paying off your mortgage sooner. To help you decide, here's an overview of the different types of rates.

What is a fixed mortgage?

When you opt for a fixed-rate mortgage, you're making a commitment to pay interest calculated at that rate for the entire loan term, regardless of how market rates fluctuate during that time. A fixed rate is considered more secure than a variable rate because it can't increase over time, even if benchmark or EIBOR rates rise.

Advantages

Since a fixed rate doesn't fluctuate during the set term, you'll know the exact amount of your payments from month to month and you can keep your budget in line.

You'll enjoy the peace of mind that comes from not being affected by higher interest rates.

Disadvantages

Based on historical data, a fixed-rate mortgage often ends up costing the homebuyer more.

Although you're protected from rising rates, you can't take advantage of falling rates.

What is a variable mortgage?

When you're looking for a mortgage solution, you'll probably notice that variable rates are often lower than fixed rates.

On the one hand, a fixed rate allows you to determine precisely how much your payments will be. On the other hand, a variable rate lets you make the most of a favourable market, which has been the case in recent years.

On average, a variable-rate home loan costs less over the long term. Since homeowners with a variable rate often pay less interest than they would with a fixed rate, they can pay off their loan faster. However, there's no guarantee how markets will perform in the future.

Advantages

Better potential cost savings

Mortgage paid off sooner

Disadvantages

Exposure to possible interest rate increases

The portion of your monthly payment that goes towards the principal is not always the same

Your household budget could be affected if your payments go up significantly.

Should you opt for 1-year fixed, 2-year fixed, 3-year fixed, 10-year fixed or simple go for variable interest rate largely depends on your overall financial position.

Talk to one of your Homely Yours advisors and choose the mortgage that's right for you.

Start with a free Mortgage pre-quote from Homely Yours and check today's rates on our Website [updated in real-time]