Question

Under what conditions might a variable-rate mortgage be more appropriate than a fixed-rate mortgage?

Answer 1

You should consider a variable rate mortgage if interest rates are high and expected to fall, this rate will ensure that you get to take benefit of the market rate drop, as you’re not barred into a particular rate. If interest rates are climbing or are steady, anticipated payment is important to you, then a fixed-rate mortgage may be the way to go.

Therefore, variable-rate mortgages are beneficial for a borrower in a decreasing interest rate environment.

Alternatively, a variable rate mortgage might be a good fit for a borrower who plans to sell the asset after a few years or one who plans to refinance in the short term. The longer you plan to have the mortgage, the riskier a variable rate mortgage will be. While initial interest rates on a mortgage may be low, once they begin to adjust in the long run, the rates will typically be higher than those on a fixed-rate loan.