VARIABLE RATE OR FIXED?

Most research supports the notion that variable rates will put you out further ahead in the long term- but one must remember to compare apples to apples. These figures generally only consider the benefit from a rate point of view, and interest paid.

Angela Calla, Mortgage Broker, AMP Dominion Lending Centres, says that there are definitely attractive features to the variable rate, “Reports show us that 88% of the time you will get ahead with a variable rate.”

But as she points out- there are benefits to the fixed side of rates as well. “The always predictable pay out penalty with the variable rate mortgage that people enjoy compared to the ugly interest rate differential (IRD) payout penalty that can come with a fixed, the spread and cost of security are more attractive regardless of the ugly trait.”

And Calla suggests that this may signal a turn in the tide of consumer appetites for rates too. “This may be the 12% of the time where going fixed will be the new trend -until rates start to rise.”

It is always important too, to remember to match product to person- as looking at straight rate scenarios does not always meet all of a clients needs or goals- namely how comfortable are they with risk? Yes, research shows that over several years, variable rates may save them money, but will they spend the bulk of the nights between now and then up worrying?

And Calla says, there are certain groups for which certain rates make good fiscal sense. “For first-time homebuyers, one of the most popular choices is a fixed rate as it also helps them qualify for more house."With a variable rate, they must qualify at the Bank of Canada qualifying rate, in most cases, allowing them to purchase on average 30% less house.”

It is important to collect as much information as possible, to make the best, most appropriate decision. And like most things in successfully managing finances, strategy is required. “Think a fixed rate will protect you from rate change? Guess again! If you don't manage your mortgage with inflation via an ongoing strategy, when mortgage rates return to normal levels you can have payment shock.”

Calla says that it is not just about a straight rate: “Keep in mind that each option needs to be managed properly so you're optimizing your mortgage product. Timely information is the key to your success, whether you choose fixed or variable.”

PLEASE FEEL FREE TO CALL MARGARET at 416 543 9264 WITH ANY QUESTIONS RELATED TO YOUR MORTGAGE RATE OPTIONS.