Fixed or variable rate mortgage?

Choosing between a fixed-rate mortgage or a variable-rate loan requires particular vigilance because, depending on the formula chosen, the monthly payments may vary considerably. The rate chosen determines the financial burden that the borrower must bear through the amount of interest to be paid.
Let's take a look at the two formulas.

The fixed-rate loan: security

The fixed rate is a real insurance for the borrower. With this loan, the borrower benefits from a rate that is determined when the contract is signed with his or her banker: it will not change during the entire term of the loan. However, although the borrower is protected from any increases in the financial markets, he or she will not benefit from decreases. The fixed rate also makes it possible to adapt the monthly payments or the duration of the loan to changes in the borrower's income. Thus, the monthly payments can be adjusted or progressive.

Variable or revisable rate: flexibility

The variable or revisable rate loan has an initial rate that changes according to a periodicity and an index fixed in the contract. The positive point of this rate is that it is lower at the time of subscription than a fixed rate. However, it can go up (it is generally capped) or down, which leads to :
- a change in the monthly payment with the same loan term,
- a stable monthly payment with a longer term.
However, the main disadvantage of the variable rate is the impossibility for the borrower to know the total cost of the loan when taking out the loan.

When taking out a mortgage, seek expert advice on the best rate for your personal and professional situation

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Posted on

16 August 2017