THINGS TO CONSIDER
Fixed and Variable rate mortgages both have their advantages and disadvantages!
Historically speaking, homeowners tend to pay lower rates with variable mortgages, but these mortgages are also vulnerable to fluctuations because they’re tied to the Bank
of Canada’s prime rate (which is announced eight times per year). Fixed rates, on the other hand are primarily influenced by the yield on Canadian government bonds (bond yields) , and are typically higher than variable rates, but their rate is consistent throughout the term of the mortgage. Below are a few questions to help you determine which type
of mortgage is right for you.
CAN I AFFORD TO TAKE A VARIABLE RATE MORTGAGE
There is some risk associated with variable rate mortgages, so if you go this route, you must be able to mitigate the risk if rates do rise. One method of protecting yourself involves setting your payment to a fixed amount that’s higher than the minimum requirement. For example, setting your payments based on the current 5 year fixed rate will allow you to provide a buffer in the event that rates rise and, because you’re paying more than the minimum amount, you’ll be paying more of your principal as well.
DOES A VARIABLE RATE MORTGAGE FIT MY RISK PROFILE?
Once you have decided you can afford a variable rate mortgage, the next thing to assess is whether a variable rate mortgage fits your personality, lifestyle and comfort zone. If you’re the type of person that can’t sleep at night knowing that your rate and payment may change by 0.25%, then a variable rate mortgage may not be the best option for you.
WHAT TYPE OF VARIABLE RATE MORTGAGE SHOULD I CHOOSE?
There are three main factors to consider when choosing a variable rate mortgage:
- Payment frequency – Make sure you are aware of the options available before deciding. Some lenders may not allow certain variations of payment frequency (i.e.accelerated biweekly or weekly payments).
- Rate changes – Some lenders change their variable rates in line with the Bank of Canada eight times per year while others do it quarterly.
- Conversion to fixed rate – Does the lender allow the mortgage to be converted to a fixed rate mortgage at anytime? If so, what rate are you guaranteed on conversion – the best discounted rate or the posted rate?
If you would like to discuss all of your options in detail please contact me directly at 250-819-6536 or 1-888-819-6536 or email me at email@example.com