Pros of a 1-year variable mortgage rate

Like any decision you make, there are pros and cons that go along with that decision. Depending on what you're looking for in a mortgage and where you see your mortgage heading after 1 year, here are some of the pros of a 1-year variable mortgage.

• Usually a lower monthly payment and interest rate: But because it’s tied to the prime rate, it can increase at any point of the term.
• Can be converted to a fixed rate: Most lenders will let you switch from a variable to a fixed rate, but not the other way around.
• Less penalty for breaking the mortgage: With a variable rate, the penalty for breaking your mortgage is usually only three months’ worth of interest payments.

Cons of a 1-year variable mortgage rate

And on the other side of pros, there are cons. While these cons aren't necessarily bad, they're some factors to consider.

• Financial uncertainty: Your mortgage being tied to the prime rate can cause some uncertainty with not knowing if and when your rate will increase and by how much.
• Budgeting: Never knowing if and when your rate will increase can make budgeting and financial planning more difficult, especially for the long term.