Fixed Rate Mortgage vs. Variable Rate Mortgage

One of the many decisions home buyers have to make is to decide between choosing a fixed and variable-rate mortgage. With rates being so low, it confuses buyer now as may be the time to choose to go variable.

By choosing a fixed-rate mortgage, you are locked into an interest rate and your payments stay consistent over a given term and period unless you decide to use other options allowed under mortgage terms and your agreement. For first time home buyers taking on a huge amount of debt, a fixed-rate mortgage may help them sleep a little better at night. The homeowner will be paying more in interest, but they will know exactly what they will be paying for the entire mortgage term.

The homeowner that chooses a variable-rate mortgage can expect payments to fluctuate as interest rates rise and fall. For that reason, the homeowner usually gets a better interest rate reflecting the improbability and increased risk. (As Finance Minister recently made comment over we can believe the interest rate may not be rising sharply in this near future, but you never know it can definitely fluctuate).With the central bank rates barely changing over the past year, and not expecting to change any time soon, lenders have been closing the gap between fixed and variable mortgage rates. With the rate gap shrinking, it means it’s a good time to think about choosing a variable-rate mortgage, the buyer have more grip over the mortgage deals.

There are a few factors that favour choosing a variable-rate mortgage. Over the last fifty years, variable rates mortgage have been approx. 1% cheaper than fixed-rate mortgages. The last time variable rates were at a disadvantage compared to fixed-rates mortgage was in the late 1980’s, when the rate get huge surge.

Variable rates mortgage in Canada are near an all time low. Recently, The Bank of Canada indicated they’ll be keeping interest rates low as they are uncertain about the North American and European economy. Since the U.S. Federal Reverse promised to keep interest rates low through 2012 and 2013, and Europe is facing debt crisis, we can expect rates to stay low in Canada as Canadian interest rates usually don’t much differ from rates in the U.S.

Some of the top mortgage lenders/ mega brokers/ financial institutions in Canada think rates might drop even lower; it all depends on government monitory policy and economical recovery…

When it’s time to sell your house and you are not at the end of your mortgage term, it’s cheaper to break a variable rate mortgage than a fixed rate mortgage. Typically when you break a fixed rate mortgage the penalty is the greater of three months interest or the Interest Rate Differential. If you’re looking to break a variable rate mortgage you are only subject to a penalty of three months’ interest or better yet verify with your mortgagee, lender, bank, financial institution.

One of the great advantages of choosing a variable rate mortgage is you can lock in all or part of your mortgage at a fixed rate anytime you want, when it is variable open. if you did locked in for variable rate for certain period, your mortgage obviously with variable rates mortgage are a riskier product to choose, but it’s a risk that can really pay off as well. If you’re not a risk taker, ask your mortgage lender broker if they offer a half fixed and half variable product. It’s better of both world 50/50 mortgages.

Talk to us before you decide to buy real estate, renewal, refinance, 2nd mortgage, equity loans, cash back mortgage, or pre-approval…
Vijay Gandhi,
Sales Representative- REALTOR®,
RE/MAX Dynasty Realty Inc. Brokerage*
&
Mortgage Agent Licence #: M10001947
CENTUM Metrocapp Wealth Solutions Inc.
Licence #: 12147

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