Fixed or Variable-Rate Mortgage

This is one of the main questions asked.  Do you take the lower beginning payments of a variable-rate mortgage and risk elevated future payments, or make the same fixed payment the duration of the mortgage?  No one has a crystal ball to predict the future.

When a mortgage begins, a principal and interest payment is determined.  This payment is higher for a fixed rate mortgage,  but for a fixed rate mortgage this payment remains constant.  Otherwise, it changes at a specific time in the future and subsequently after that based upon the index established at mortgage closing..  The change may result in less of a payment, but, past history shows it increases, possibly more than expected.

Part of the purchase process is deciding how long one intends to remain in the property.  The variable-rate works well if the property is sold before the first change date.  If plans change, however, there may be “payment shock.”  This is avoided with the fixed-rate mortgage which facilitates financial planning.

Currently, during the Covid19 pandemic, the two start rates are so close and low that the fixed-rate offers better financial protection.