Purchasing a house may be a daunting task for anyone, especially for first time buyers. One of the complexities involved is to decide between a fixed or variable rate mortgage. Depending upon the market and your financial expectations, each option provides different benefits and drawbacks.
A fixed rate mortgage has many positive features, such as guaranteed rate of interest, monthly payment certainty, low down payment, few calculations, and easy understandability. Fixed mortgages are controlled mortgages and easy to administer. Because of all these factors, these are popular with first time home purchasers.
On the other hand, fixed mortgages come with high rates of interest and may not be suitable during times of falling interest rates.
Variable mortgages are generally cheaper and result in savings when rates fall.
Studies have shown that there have been more savings with variable rate mortgages, and they are favored by a large number of buyers.
However, variable mortgages require a higher down payment and are unstable. These are difficult to manage, as the monthly payments may fluctuate. They can also be complex, as there are many types, such as standard, discounted, cash back, and tracker mortgages.
Choosing between the two depends on individual situations and interest rate deals.
An informed decision can be made in consultation with financial professionals.