PROUDLY CANADIAN
The fixed or variable options
As with most decisions, there are different options to consider, but, in the case of a fixed or variable mortgage rate, it’s a decision that can significantly affect your future financial well-being and even perhaps your lifestyle. Therefore, before you leap into taking, for instance, the fixed rate mortgage offered by your bank spread your financial wings and view the property mortgage world!
Being aware of the differences in any proposal is critical, especially when tying you into a significant commitment. Looking at it like this, what can be bigger than your home and a lifetime asset? Therefore, before you speed along to the Mortgage Guys, first consider the differences between a fixed rate mortgage and one that is variable.
Is it tradition alone?
Committing to a mortgage with a 5-year fixed rate is deemed to be the most popular option, in comparison to a variable mortgage rate, but this could be for the reason that your ancestors have selected this option for decades past. You could now be thinking that it’s something very special, but in effect, it mainly provides a guarantee that your mortgage payments will not in anyway change during the next 5-years.
This automatically raises the issue of how the 5-year rate is set by the Canadian banks; it is set by them reviewing their own borrowing costs, which is easy to determine. You visit the website for the Bank of Canada, and it will give you details of the fluctuation in 5-year bonds yields. As far as a fixed mortgage rate is concerned, if the “yields” are up then so are costs to the banks, which also works in reverse! As bonds are subject to daily trading, it means that with a 5 year fixed mortgage rate the bank is accepting the daily fluctuation risk, not you!
The variable rate
As we mentioned previously, take a broad view, but supported with advice from your mortgage broker, especially regarding a variable mortgage rate. It is reported by various brokers that an increasing number of clients are electing for a mortgage with a variable rate, which although bearing a greater risk also offers a very low rate. The description for a variable rate mortgage is a discount off the prime rate.
This is not a decision to be taken lightly, and there are various determining factors involved, including your particular circumstances. Therefore, be safe and get assurance from the Mortgage Guys; they know what they’re talking about.