Is a Fixed Mortgage the Best for Me?

If you're considering purchasing a home in the near future, you've likely been faced with choosing between a fixed mortgage and a variable one. What are the benefits to choosing a fixed mortgage to finance your home purchase? Are there any disadvantages that should be considered?

Advantages

- During the fixed rate period of time, there is no change in the interest rate on your financing and your monthly payments will remain the same. There will be no surprises in the cost of your mortgage payments while your interest rate is fixed.

- Fixed rate financing is ideal for those that must stick to a strict budget, as there is no need to account for possible changes in interest rates. Your monthly mortgage rate will be completely predictable, and therefore can be budgeted into your monthly expenses easily.

Disadvantages

- Since your interest rate is fixed, there is no possibility that it will be lower at any point. If market rates drop, a variable interest rate would also drop. Should this happen, you will actually end up paying more with fixed rate financing than you would have had you chosen variable interest financing.

So, how do you know which type of mortgage is the best for your situation? It really depends on your individual finances and the current market. If it can be reasonably assumed that the current market rate will be decreasing over time, it's probably a good idea to choose variable rate financing over fixed rate.

If it can be reasonably assumed that the current market rate will be increasing over time, or if you are in dire need of very predictable financing, fixed rate financing will probably be the best choice for you. You'll be able to lock in a specific interest rate and have housing costs that remain constant month to month, rather than changing with market rates.

Should you choose fixed rate financing and find that there has been a significant decrease in the market rate in the future, it is possible to engage in a refinance to obtain the lower rate. While there are fees associated with refinancing, a significant reduction in the average interest rate on financing for homes may be worth the associated fees. You may have a need for fixed rate financing now, but it is possible to switch to variable rate financing in the future if your budgeting needs change.