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Fixed or Variable – Which one is right for me?

If you’re buying a home for the first time, you may not be entirely clear on the difference between fixed rate and variable rate mortgages. Both have benefits and the choice that’s right for you will depend on your situation and your personal preferences. Here’s what you need to know.

The benefits of a fixed rate

With a fixed rate mortgage, your interest rate and your payments are locked in for the length of term that you choose. Even if interest rates rise, your mortgage rate won’t change and your payment will stay the same. For many homeowners, this protection against rising rates is important for their peace of mind.

The benefits of a variable rate

With a variable rate, your mortgage rate fluctuates along with the bank’s prime rate. In most cases, your payment won’t change, but what will change is the amount of each payment that goes towards principal rather than interest. when rates go up, more of each payment will be used to pay interest, so you,ll be paying less principal.

So why would you want to go variable? Historically, variable mortgage rates have almost always been lower than comparable fixed rates. In addition, you can switch to fixed rate at any time, without charge.

Factors to consider

A number of factors may influence your decision between fixed and variable. currently, interest rates are near historic lows but many industry experts anticipate that they may rise around the middle of 2011. As a result, this may be an opportunity to lock in a fixed rate at the lowest level for some time.

On the other hand, if you choose a variable rate, you’ll get a lower rate now and you,ll have the flexibility to lock in to a fixed rate if you think rates might start to rise.

For more valuable tips on financing your first home, consider getting the BMO First Home Essentials kit. lt comes with valuable offers and has a wealth of information, tools, and resources to help you enter the market with confidence. you can order it online at www.bmo.com/firsthome.

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