Variable-Rate Mortgages: Worth the Risk?

By Bruce on February 2, 2010 10:38 AM in Mortgage Brokers | | Comments (0)

Yesterday I wrote about fixed-rate mortgages and the peace of mind that they provide to borrowers. Let's take a look at the other mortgage option - variable-rate mortgages.

While some people prefer the comfort of knowing exactly what their monthly borrowing costs will be, others borrowers are comfortable with a variable-rate that is lower, meaning that they pay less interest. When mortgage rates start to rise above comfortable levels, the variable-rate can be switched to a fixed-rate.

The bonus is that the penalty for breaking a variable-rate mortgage only costs three months' interest. Whereas, breaking a fixed-rate mortgage can cost the borrower the higher of either three months' interest or an interest rate differential (IRD) which compensates the bank for the loss in interest.

What are you comfortable with - fixed or variable-rate? With so many strategies and options available, speaking with a professional such as a mortgage broker can help you decide.