This site uses cookies.

The types of cookies we use, and the way we use them, are explained in our Privacy Policy. By clicking "Accept" or continuing to use our site, you agree to our use of Cookies. More information

Laura Thompson
519-277-3013

Mortgage AMP Real Estate Salesperson

Real Mortgage Associates
Visit me on Facebook
Rate Advisor
Search For Property
Mortgage Calculator
Personal Information
Client Reports
MORTGAGE ARTICLES
Mortgage Terms

 

fixed vs variable mortgages

 

The question mortgage consumers are asking is:
 
Should I go Variable Rate or Fixed rate? The answer – Depends!
 
 
Variable rate is based on the Bank Prime, which is what financial institutions charge to the consumers. Bank Prime is based on the Central Bank Rate (the amount of interest the Bank of Canada charges financial institutions for short term loans). As the Central Bank Rate increases or decreases, so does Bank Prime and in turn the variable rate.
 
 
The 5 year fixed rate is based on the bond market. As the bond market increases or decreases so does the 5 year fixed rate.
 
 
If Bank Prime increases, that doesn’t mean that the fixed rate will increase or vice versa. Since January 2000 the average weekly Prime rate has been 5.28%. Conversely the average weekly posted 5 year fixed rate has been 6.9% during the same time period.
 
 
A number of years ago, it was clear that going with a variable rate mortgage would save consumers money. But heavy discounts on fixed rate mortgages and the narrowing spread between short-term and long-term interest rates have made the choice today less obvious.
 
Instead of trying to guess where rates are headed, consumers would do better to think about their own situation. They should evaluate their personal balance sheets and risk tolerance. The decision of whether to go short (variable) or long (fixed) will depend on the consumers’ tolerance for risk as well as their ability to withstand increases in mortgage payments.
 
 
The first time homebuyer or those with minimal down payment represent the perfect consumer to go long-term fixed mortgage rate. If the consumer is at or near their maximum GDS/TDS ratios, they cannot take the chance of increasing interest rates. The worrywart, who is constantly looking at interest rates and can’t sleep at night wondering if it is time to lock in, should also go long-term fixed mortgage rate. The seasoned veteran who has plenty of equity in their home or has little time left on their mortgage, i.e. 5 to 10 years remaining on their amortization, can afford to go variable rate and take the risk.
 
 
Something to keep in mind is that variable rate mortgages allow consumers to lock in to a fixed rate at any time without costs. While there's no up-front cost to the change, not all lenders will lock in at the fully discounted five-year fixed rate mortgage. Consumers should be sure to ask their lender if they will get the same fully discounted fixed rate if they decide to lock in.
 
 
If you are at your maximum purchasing power or you’re a worrywart, lock-in, forget about it, and enjoy life!
 
 
Talk with your Mortgage Alliance professional to decide which is right for you.
adminlistingsprivacy policycontactsite map
MLS®, REALTOR®, and the associated logos are trademarks of The Canadian Real Estate Association.

The listing content on this website is protected by copyright and other laws, and is intended solely for the private, non-commercial use by individuals. Any other reproduction, distribution or use of the content, in whole or in part, is specifically forbidden. The prohibited uses include commercial use, "screen scraping", "database scraping", and any other activity intended to collect, store, reorganize or manipulate data on the pages produced by or displayed on this website.
The information contained on this site is based in whole or in part on information provided by members of The Canadian Real Estate Association, who are responsible for its accuracy. CREA reproduces and distributes this information as a service for its members and assumes no responsibility for its accuracy.
This website is operated by a brokerage or sales person who is a member of The Canadian Real Estate Association.
REALTOR®, REALTORS®, and the REALTOR® logo are certification marks that are owned by REALTOR® Canada Inc. and licensed exclusively to The Canadian Real Estate Association (CREA). These certification marks identify real estate professionals who are members of CREA and who must abide by CREA's By-Laws, Rules and the REALTOR® Code. The MLS® trademark and the MLS® logo are owned by CREA and identify the quality of services provided by real estate professionals who are members of CREA.

The trademarks MLS®, Multiple Listing Service®, and the associated logos identify professional services rendered by REALTOR® members of CREA to effect the purchase, sale and lease of real estate as part of a cooperative selling system.
Canadian Real Estate Association Last Updated: 7/23/2019 11:22:15 AM

Copyright © 2002-2019. All rights reserved.
Real Estate Marketing by Lone Wolf Technologies.
Lone Wolf Technologies