When choosing a mortgage, you may see variable or fixed interest rate options. The interest rate is used to calculate how much you need to pay to borrow money. Fixed interest rates stay the same for your entire term and they are usually higher than variable interest rates. This type of rate is best if you want to keep your payments the same over the mortgage term, know how much of your principal will be paid off at the end of the term, or keep the rate the same if you think that rates will go up over the length of the term. Generally, a fixed interest rate is less risky.
A variable interest rate can increase and decrease during your term. The rise and fall of interest rates are difficult to predict. To decide if this is a good option for you consider how much of an increase in mortgage payments, you’d be able to afford if interest rates rise. This is also part of a stress test. A variable interest rate mortgage may be better for you if you’re comfortable with your rate changing, which could also your mortgage payment. If your mortgage allows you to convert to a fixed rate, you’ll also need to be comfortable following interest rates closely and deciding when to convert.
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