FINANCING TIPS - FIXED VS. VARIABLE

Are you a gambler? Can you see the future? Look at these 2 different types of mortgages and you may save a lot of money.

Fixed Rate Mortgage

If you think interest rates are on the rise, you may want to consider a fixed rate term. A fixed interest rate protects you against rising interest rates for the term. Plus, you have the security of knowing exactly how much your regular payment of principal and interest will be. In other words, if your mortgage payment is $1200/month it will always be $1200/month with the same fixed amount (say $500 depending on the interest rate) going towards interest and the same fixed amount ($700 in this example) always going toward the principal.

Variable Rate Mortgage

While a variable rate carries a certain level of risk, the rewards can be worth it. Basically, the amount of interest you pay changes as the Prime Rate changes. A Variable Rate mortgage can save you money while also keeping your options open during times of fluctuating interest rates. In other words, if you mortgage payment is $1200/month it will always be $1200/month but some months ( when interest rates drop) more of that money will go to paying the principal and less to paying interest. Conversely when interest rates rise you may still be paying $1200/ month BUT less money goes to the principal and more ends up paying off interest.

If interest rates drop or stay low you will be able to pay off your house sooner and build equity faster. With a Variable Rate mortgage you may also still have the option of switching to a Fixed Rate Mortgage if you think interest rates are going to go up.