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Fixed vs. Variable Mortgage

I have had numerous clients ask me lately, "Should I take a fixed rate mortgage or would I be better off with a variable rate?" So based on that, I came up with the following as a general guideline of fixed vs. variable to answer this question.

Variable rate mortgages are best suited for people who are:

Higher risk takers (invest in Mutual Funds or stocks)
Debt free or have little debt
Able to afford increases to their monthly payment should Prime go up
Budget disciplined
Income stability is strong

Fixed rate mortgages are better suited for people who are:

Lower risk takers (invest in "safer" investment products)
In debt with high monthly payments on their credit cards / installment loans
Not able to afford increases to their monthly payment should Prime go up
Not good budget keepers
Income stability is not strong

What it really comes down to is your personal level of risk tolerance, but this helps to outline the differences.

Posted by Troy Alexander on 10/05/2007 04:51 PM

Comments (5)

variable, rate, mortgages, fixed, risk, debt, payment, prime

5 Comments on Fixed vs. Variable Mortgage

No real reason to variable now!? Unless you think the rates are going down, which I doubt. Fixed vs. variable is comparable now and no need for the possibility of a rate increase.

10/05/2007 05:20 PM

by Jason Schweiger (Real Estate 2000)

Troy one additional item you left out was how long do they plan on staying in the home? short term or long?

10/05/2007 05:45 PM

by My Favorite Mortgage.net - Matthew J Blum

I agree...If you plan on moving in 2 years or will sell in 2 years...then a 3 or 5 year ARM is just fine by anyones standards.

:-)

10/22/2007 09:54 AM

by Kris Krajecki - American Mortgage Werks - Huntley, IL

Certainly the length of time someone plans to stay in the home or refinace plays a factor here. There are so many new products in the market place right now that equity management can become a significant selling point for mortgage brokers.

10/22/2007 12:51 PM

by Kate Bourland; Redding Mortgage, Debt Elimination (Windsor Capital, Dyer Beech & U First Financial)

I agree that the length of time you are going to stay in the house is a factor but based on the yield curve there still really is no benefit to going with an adjustable rate at this time unless you want to access an interest only payment.

10/24/2007 02:04 PM

by Robert Spaight (Landmark Mortgage Lenders)

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