Mortgage Blog

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Should I take a fixed rate or variable rate?

December 15, 2019 | Posted by: Ask Ana Cruz

Today, we are going to focus on fixed vs. variable as that seems to be most asked question recently.

When we see variable rates at prime minus 1% , as of today (December 2019) that’s 3.95%-1% = 2.95% and then you have fixed rates at 2.69%. The decision seems clear, take the lower rate, right? Read on, and then let us know if you want to talk and discuss your questions in more detail.

History tells us that if you take variable and stick to it for the life of your mortgage you will pay your mortgage off faster. However, when you look at the monthly payments of today and the security of the next 5 years at 2.69%, it’s hard to take the variable rate. 

If you need help deciding which is best for you, variable or fixed.  Here are a few things to consider.

-If the fixed rate is lower when you are applying for your mortgage and you want security in your payment amount. It may make sense to take the variable for this term (normally a 5 year period and re-examine your options on renewal in 5 years). If this is your decision, we suggest that you at the very least, use your prepayment options or accelerate your payment to help pay that mortgage off faster.

  • -Are you the type of person who will be looking at the news everyday to see what’s happening with interest rates? 
  • -Can you handle the ups and downs of the next 5 year term or do you need to know the actual payments every month? 
  • -Is this your first home? Are you more comfortable taking the fixed rate so that you know what your payment will be for the next 5 years regardless what happens with work, life, kids, marriage, government, etc.  
  • -Are you looking to move before your mortgage term is up? Have you considered how long of term you are taking and what the penalty will be? 
  • -Did you know that the penalty on a variable mortgage and a fixed mortgage are calculated differently? 

Make a list of your questions and be sure to connect with us, we will help you understand that pros and cons. 

A quick explanation:

Variable rates, are determined by the bank’s prime lending rate and is influenced by decisions made by the Bank of Canada. If the Bank of Canada raises its lending rate, your mortgage rate will increase, and either your monthly payment or the portion of your payment you pay toward interest will rise.  It’s important to note that there are variable mortgages where your monthly payment will be affected either an increase or decrease in payment and then there are mortgages where the payment will stay the same. For those mortgages where you monthly payment stays the same, it’s important to understand that the  increase in rate is absorbed into the interest payment, meaning less principal is paid with each payment, hence the reason why you took a variable mortgage has just been wipes out. Please ensure that you speak to your mortgage broker about your variable mortgage and understand how the rate increase and decrease will affect you.  

Mortgage Broker, Ana Cruz and her team have two offices to better serve you. 651 Fennell Ave East, Hamilton and 5063 North Service Road, Suite 200, Burlington 

Ana can be reached at 905.870.0513 or you can email her at ana@askanacruz.ca

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