Whether you're looking to buy a home for you and your family or simply considering an investment property, one of the biggest choices you will need to make concerns whether to opt for a fixed-rate or variable-rate home loan.
Each choice comes with its own pros and cons, so it's important to weigh your options carefully.
Fixed rates offer mortgage borrowers peace of mind, as the interest you pay on the loan will not rise throughout the agreed fixed term period, regardless of what's occurring in the market.
This also makes it much easier to plan out payments, as you will be paying the same amount each month.
At the same time, the features that make fixed-rate loans so attractive can also count as negatives.
First, since the rate won't change over the fixed period, it is likely that your fixed-rate loan will have a higher interest rate than if you had opted for a variable-rate loan.
Secondly, if market conditions cause rates to fall, you will still be stuck with your current rate, no matter how much higher it is.
Of course, you can always refinance your loan to obtain a lower rate if this happens.
If you take out a variable-rate home loan, you have to contend with rising and falling rates based on what's happening in the market.
This means that your rates can surge suddenly, and makes it more difficult to plan ahead, as your monthly payments may change in amount each month.
However, the interest rate attached to a variable-rate mortgage is typically lower than a fixed-rate.
Also, if rates seem like they are about to rise, you can always switch to a fixed-rate mortgage by refinancing.
Deciding which type suits your needs best often comes down to how long you plan on owning a property.
If it's a long time, a fixed rate probably makes the most sense. On the other hand, if you plan on buying and selling quickly, variable rates may fit your needs more.