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Should i get a variable or a fixed rate mortgage?

While you're shopping for a mortgage there are probably two big terms that you keep hearing but you're still not sure which one is best for you. Here's an explainer so you can decide which one to choose.



Variable Mortgage


Banks charge interest as a cost for borrowing funds from them. A variable rate mortgage is a mortgage where this interest rate will rise or fall across the entire term of the mortgage loan. Usually your bank will let you know in advance if your rate is going to change and how it will affect your monthly payments.


Pros

  • Variable rates allow you to make lump sum payments or increase your regular monthly payments. This can save you money and interest and can even help you in paying off your mortgage sooner.

  • In the periods when mortgage interest rates drop, so do your regular monthly payments

Cons

  • It can be more difficult to have a monthly budget with a variable mortgage because regular monthly payments will be more unpredictable than payments made with a fixed rate mortgage.

  • Variable mortgage rates are influenced by the mortgage market, so if the mortgage market starts doing poorly your monthly payments may become more expensive.

  • In the periods when mortgage interest rates rise, so do your regular monthly payments.


Fixed Mortgage


A fixed rate mortgage means your interest rate stays the same for a previously agreed upon length of time. This means that even if the mortgage market rates fluctuate your interest payments will not change for the entire length of your fixed rate loan. In Ireland, the maximum amount of time you can fix a mortgage for is 10 years.


Pros

  • Since the interest is fixed, your mortgage payments will remain consistent for the entire length of your fixed rate loan.

  • Fluctuating markets or volatile interest rates have no impact on fixed mortgage rates.

  • Consistent payments make it easier to make monthly budgets, so it's a good option for home buyers with tighter budgets.

Cons

  • You may not benefit from a drop in your lender’s interest rates.

  • In the event you decide to choose another mortgage rate or change to a different lender you will probably have to pay your lender a penalty flee.



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