Fixed or Variable
One of the first decisions home buyers and mortgage shoppers face is whether to select a fixed-rate or variable rate mortgage and my job as a mortgage planner is to educate my clients so that they are able to make an informed decision that best suits their financing needs.
Clients always ask me the following question:
Maria-Anna should I go with a Fixed Rate or should I go with a Variable rate?
My response is always that there is no right or wrong way to go. Every mortgage transaction and every client’s financial needs differ from one another. So the questions really are which one are you most comfortable with? and which one suits YOUR financing needs the best?
With a Fixed Rate Mortgage, the payment you make each month will stay constant for the term of the mortgage. With a fixed-rate mortgage, you can essentially “set it and forget it”. Regardless if rates rise or fall your rate is always constant. A fixed-rate is best for clients that love to budget, it also offers stability. However, if the difference between the variable and the fixed rate is significant, it may not be worth paying a premium for the stability and protection of a fixed rate.
A Variable Rate Mortgage will be quoted as Prime +/- specified amount, for example, Prime – .50%. The Prime lending rate may fluctuate. The relationship to prime will stay constant over your term. In this example, the -.50% will stay constant but Prime may change. Historically variable rates have proven to be less expensive over time. However, with a variable rate, significant increases in the prime rate will increase your interest payable and may cause a financial burden.
I always tell my clients to think of the difference between variable and fixed mortgage rates as the price of insurance that lending rates will not increase, more or less. When interest rates are low and are not expected to fall further, it is generally advised to lock in a fixed rate. Variables rates will, at best, stay the same, or increase. On the other hand, if you expect interest rates to fall with some certainty, then a variable rate is preferred. You will be able to absorb the benefit of paying lower interest. Similarly, if the difference between the variable rate and the fixed rate is significant, it may not be worth paying the premium for the stability protection of a fixed rate.
Call me to discuss your current mortgage and let me provide some alternative options that may save you money.
I truly believe that every customer deserves the best care and service when purchasing or refinancing the home of their dreams. I am here to serve your mortgage needs and have what it takes to make a difference in your next mortgage transaction.
With access to over 50 of Canada’s Top Lending institution, I can place all types of mortgages including purchases, refinances, equity takeout’s, debt consolidations, renewals and mortgages for the self-employed. Call me today and get a free quote and overview of current market conditions affecting the mortgage market!