Fixed vs Variable Home Loans 2024 - Mortgage Choice (2024)

FAQs

Fixed vs Variable Home Loans 2024 - Mortgage Choice? ›

Variable rate home loans tend to be more flexible, with more features (e.g. redraw facility, ability to make extra payments); fixed rate home loans typically do not. Fixed rate home loans have predictable repayment amounts over the fixed term, variable rate home loans do not.

Indeed, Wells Fargo estimates the 30-year fixed mortgage rate will average 6.5% by the end of 2024 and 5.9% by the end of 2025. If you bought a home in 2022 or 2023, the prospect of refinancing your mortgage might seem appealing as rates fall.

Historically, a variable rate tends to save homeowners more over the life of a mortgage. The flexibility to lock into a fixed rate at any time, penalty-free. Paying a lot less penalty than a fixed-rate mortgage if you decide to switch lenders.

It's currently cheaper to lock into a five-year fixed mortgage than a two-year deal, based on average rates. This has been the case since October 2022, according to Moneyfacts. In July 2024: Two-year fixed rate mortgage = 5.91%

Fixed-rate mortgages offer stability and predictability in monthly payments, making them a better choice for long-term homeowners. ARMs may be a better option for those planning to move before the introductory period ends or for those expecting a significant increase in income by then.

Fed watchers now see at least two rate cuts before the end of the year, but some are betting on three, with more to come in the spring. Some economists say the benchmark rate could be as low as 3 to 3.5 percent by the second half of 2025.

Lower mortgage rates in 2024 — NAR is predicting the average will be 6.3% by the fourth quarter, down from 7.8% in 2023's final three months — will entice more owners to give up the super-low rates they got during the pandemic and put their homes on the market, Yun said.

While a fixed interest rate can be useful to help protect you against potential interest rate rises, it can mean that you're stuck with the fixed rate if variable interest rates decrease during the fixed period. Fixed rate home loans generally have fewer features than variable rate home loans.

You'll pay more in interest if rates rise during your term. The amount you pay in principal varies, so it can potentially take longer to pay off your mortgage. May increase your financial uncertainty.

Pros of variable rate mortgages can include lower initial payments than a fixed-rate loan, and lower payments if interest rates drop. The downside is that the mortgage payments can increase if interest rates rise.

Should I lock in a mortgage rate now? ›

Locking in early can help you get what you were budgeting for from the start. As long as you close before your rate lock expires, any increase in rates won't affect you. The ideal time to lock your mortgage rate is when interest rates are at their lowest, but this is hard to predict — even for the experts.

A fixed-rate loan makes it easier to create and stick to a budget. Additionally, this loan type makes it easier to plan your future as life changes occur, which will likely happen over 30 years. Fixed-rate mortgages may also be preferable for those planning to stay in the same house longer.

If variable rates are expected to rise and stay elevated, switching to a fixed-rate mortgage can reduce the amount of interest you'll pay.. More stability. The primary risk of a variable-rate mortgage is that you never know how much interest you'll be paying from one Bank of Canada rate decision to the next.

ARMs make home ownership more affordable—at least initially. Throughout 2023, mortgage rates steadily ticked upward, pricing many prospective homebuyers out of the market. In mid-2024, rates started declining in anticipation that the Federal Reserve might reduce the federal funds rate.

Interest Rate Trends and Forecast: In general, if you think interest rates are going up, locking into a fixed rate agreement is favorable (at least in the short term). If you think interest rates are going down, a variable rate agreement is ideal in the short term.

The biggest risk of an ARM is that, after the initial fixed-rate period expires, your rate could increase, pushing up your monthly mortgage payment.

Monetary Policy Summary, August 2024

At its meeting ending on 31 July 2024, the MPC voted by a majority of 5–4 to reduce Bank Rate by 0.25 percentage points, to 5%. Four members preferred to maintain Bank Rate at 5.25%.

“While not immediate, we do expect these rate cuts to eventually lower mortgage rates,” Rick said Tuesday in comments emailed to The Post. “This should increase housing supply in the coming months and years.” Falling mortgage rates may help more people purchase a house — if they can find one to buy, Brusuelas said.

There's a good possibility that HELOC rates will drop again in 2024. The Federal Reserve has hinted at reducing interest rates, which could influence the rates for Home Equity Lines of Credit (HELOC) as well. As inflation cools, borrowing costs may decrease.

Mortgage rates may go down in response to lower inflation, slowing economic growth, or easing Fed policy.