One of the biggest decisions you are going to have to make when you are looking for a mortgage is whether you will opt for a variable or a fixed rate mortgage. This is one single decision that can either cost you or save you thousands of dollars over the term of the home loan. While a variable rate mortgage has generally turned out to be cheaper than its fixed rate counterpart in the past, today's low interest rates make the real estate market quite different from what it was in earlier years.
Right now there is a very low spread between variable and fixed rates and it's not too realistic to consider a downtrend occurring with these low rates. In the past a variable rate mortgage had many advantages but this just may no longer be the case.
With rates this low is only one way for them to move and that is up. Lately, fixed rate mortgages have been a lot more popular than the variable loans. This doesn't necessarily mean that a fixed rate will be right for you though.
When you opt for a mortgage with a fixed rate you'll be locking in the rate that's available at the time of closing and you'll never have to pay a higher rate of interest even when it goes up. On the downside, if rates should lower, you’ll still have to pay the fixed rate that you agreed upon when you first took out your loan.
This is why so many people are deciding to lock-in their loans nowadays. It's unlikely that we'll see interest rates go any lower and it's almost a given that they will be rising in the future. When you need to make a decision, having a crystal ball in front of you that can forecast the rise and fall of interest rates in the years to come would certainly come in handy!
Talk to your financial planner or mortgage broker about the benefits and drawbacks of both types of mortgages. In some cases a variable rate mortgage may still work the best for you especially if you need a lower rate of interest to get started and feel that you could cushion a rise in interest rates down the road.