Advantages of Variable Interest Rate
Before dwelling on its effects, it is worth knowing the pros of choosing variable interest rate over a fixed one. In previous years, there had been incidents wherein the rates dropped significantly to the delight of debtors who went with variable interest rates. Basically, you may also enjoy this advantage in the coming months or years.
The best part with this option is that when the interest rates are low, you may shift to a fixed interest rate for the rest of your amortization period. With the fixed one, you are not allowed to change into a variable interest rate when the rates are advantageous.
Disadvantage of Variable Interest Rate
The problem with variable interest rate is that you lack assurance. The factors influencing the interest rates are out of your control.
Worst, you might end up paying a loan with a higher interest rate in the future. Private lending institutions are not always the ones that trigger the hike. It may actually be the country’s central bank.