Variable vs Fixed

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Buying, Selling, Flipping or Refinancing? Maybe the Variable mortgage makes you more nervous than your 15th Anniversary High School Reunion.  This used to be a decision on how much risk you were willing to deal with.  Variable, over the long term during the last 10 years was most often the victor but now the fight's pretty one sided...the other way

With interest rates at historic (some might say ridiculous) lows there is very little incentive in the world of Variable Mortgages to persuade one to take the plunge.  Yes, the Bank of Canada (BOC) has indicated they won't be raising the overnight lending rate any time soon but no one has the crystal ball to forecast when that might happen.  It does HAVE to happen, we just don't know when.

Over the past year, the new mortgages taken out on property has been substantially tilted in the favour of Fixed.  80% have locked into these low rates, 10% have gone the Variable route while the other 10% are a combination of the two.  Really, who can blame them.  Locking into the low rates right now secures your financing for the next 5-10 years (beware of 10yr mortgages though, the small print can reduce the speed you can pay down the principal).  The difference in terms of rate between the 2 options is near negligible. Somewhere around a 1/4% point.

Where Variable rates can come in handy is if you are looking for a shorter term or open ended mortgage.  Say you know you will be turning a house over after renovations or will be moving out of country.  Variable makes sense in these instances because you will be able to avoid the dreaded fees of breaking a set term mortgage.

But if you are happy where you are, know that even if you sell in the next few years you will be purchasing another property that you can continue your mortgage on then by all means lock yourself in.  Take advantage of the cheap $$$ available right now, pay down your mortgage on time but use the low rates to invest in other avenues that will afford you a greater return.  As interest rates rise, you can then start to shift the investing back into paying down your mortgage more aggressively.  After all, the house can be looked upon as a forced savings program and what feels better than finally having your home paid off, free and clear.

As always, sit down with your mortgage advisor or broker to go over your options and what works best for you.  If you would like a recommendation, I have a fantastic broker that I can pass on to you.  Just be in touch.

 

 

Read 1997 times Last modified on Thursday, 29 November 2012 13:33