As Rates Go Up, is a Variable or Fixed-Rate Mortgage Better?

up by another 0.75% last week, homeowners and would-be buyers began scrambling to lock in rates. And as they did, each of them were faced with the question of whether a variable or fixed-rate mortgage is better.aims to answer this question, noting that borrowers are worried about the implications of their mortgage choices amidst rising rates.

As to be expected, the decision to go with either a fixed-rate or variable mortgage will depend on a number of factors, the results of which will change from one situation to the next. Fixed-rate mortgages, although often initially higher than variable ones, protect against any fluctuations in interest rates. This is particularly beneficial to borrowers who have limited funds and could not handle a sudden rise in monthly expenses.

The report notes that for every $100,000 of mortgage debt, a 0.25% increase in the mortgage rate translate to an extra $1,160 in interest charges over five years. The key to benefitting from a variable rate mortgage, King says, is to combine these lower rates with a debt repayment strategy such as double-up payments or an annual lump-sum repayment. By making an extra $1,000 annual payment against a mortgage principal, a borrower will save $1,350 in interest and pay off their debt four years sooner.

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