Date: October 29, 2024

Understanding Variable vs. Fixed Rate Options

When it comes to choosing between a variable/adjustable and a fixed-rate mortgage, there’s no one-size-fits-all answer. Here are some key points to help you make an informed decision using the scenario of a $100,000 mortgage amortized over 25 years. Rates being offered are 4.29% fixed and prime -1.10% which is 4.85% as of today:

Current Rate Difference
– Today’s fixed rate: 4.29%
– Variable rate (prime minus discount): 4.85%

Monthly Cost Impact:
For a $100,000 mortgage with a 25-year amortization, choosing a fixed rate over variable costs approximately $31.24 more per month.

Potential Rate Scenarios
If the prime rate drops by 0.25% in 2024, another 0.50% in 2025, and 0.25% in 2026
– A variable rate would likely result in net savings over time, given the accumulated decrease.

If the prime rate drops by only 0.25% annually over the next five years
– A fixed-rate may ultimately lead to lower interest costs, depending on the steadiness of those minor adjustments.

Risk and Flexibility with Variable Rates
While no one can guarantee future rate movements, current forecasts suggest a potential drop of 1.25% over the next year that’s as of today’s news updates.

Flexibility Advantage
If you opt for a variable rate and find that the prime rate hasn’t dropped as expected, you can lock into a fixed rate with your current lender or even switch to a different lender offering lower rates, typically with only a three-month interest penalty since you choose to take a variable rate product. This is where we come in and help you navigate this possible change.

I hope these points clarify your options in choosing between a variable and a fixed rate. This choice is personal and depends on your comfort level with risk and potential rate changes. If you’d like to explore this further or discuss your unique situation, I’m here to help.

As always, I invite you to connect and review your options 📞.

Talk soon,

Ana

Mortgages can be complicated; we are here to help you make “cents” of it.

We focus on Mortgage Solutions, Period!

To learn more connect with Ana Cruz 905.870.0513 or email at ana@askanacruz.ca