## Mortgages: Variable or Fixed Rate?
When it comes to mortgages, there are two main types: **variable rate mortgages** and **fixed rate mortgages**. Each type has its own advantages and disadvantages, and the best choice for you will depend on your individual circumstances and financial goals.
**Variable Rate Mortgages**
Variable rate mortgages (VRMs) have interest rates that can fluctuate over time. This means that your monthly mortgage payments could go up or down, depending on the market conditions. VRMs are typically offered with lower interest rates than fixed rate mortgages, but they come with the risk that your payments could increase in the future.
There are two main types of VRMs:
* **Adjustable-rate mortgages (ARMs)**: ARMs have interest rates that adjust periodically, typically once per year. The adjustment is based on a market index, such as the prime rate.
* **Hybrid ARMs**: Hybrid ARMs have interest rates that are fixed for a certain period of time, such as 5 or 7 years. After the fixed-rate period ends, the interest rate will adjust periodically, based on a market index.
**Fixed Rate Mortgages**
Fixed rate mortgages (FRMs) have interest rates that do not change over the life of the loan. This means that your monthly mortgage payments will be the same for the entire term of the loan. FRMs are typically offered with higher interest rates than VRMs, but they provide the peace of mind of knowing that your payments will not increase in the future.
**Advantages and Disadvantages of Variable Rate Mortgages**
**Advantages:**
* Lower interest rates than fixed rate mortgages
* Potential for savings on monthly payments
**Disadvantages:**
* Risk that interest rates could increase in the future, leading to higher monthly payments
* Less certainty about future housing costs
**Advantages and Disadvantages of Fixed Rate Mortgages**
**Advantages:**
* Certainty about future housing costs
* Protection against rising interest rates
**Disadvantages:**
* Higher interest rates than variable rate mortgages
* Less potential for savings on monthly payments
**Which Type of Mortgage Is Right for You?**
The best type of mortgage for you will depend on your individual circumstances and financial goals. If you are comfortable with the risk of interest rate fluctuations, a variable rate mortgage could save you money on monthly payments. However, if you prefer the certainty of knowing what your monthly payments will be, a fixed rate mortgage may be a better choice.
**Here are some factors to consider when choosing between a variable rate mortgage and a fixed rate mortgage:**
* **Your risk tolerance:** How much are you comfortable with the risk of interest rate fluctuations?
* **Your financial goals:** What are your plans for the future? Do you plan to sell your house in the near future?
* **Your budget:** Can you afford to make higher monthly payments if interest rates increase?
* **The current interest rate environment:** What are the current interest rates for variable and fixed rate mortgages?
It is important to talk to a mortgage lender to discuss your individual needs and circumstances before making a decision about which type of mortgage is right for you.