Fixed or Variable-Rate Mortgage?Posted on: 2018-10-01
If you are rate shopping, you’ll notice that the lowest available rate will be for a variable mortgage, which is why I’m often asked “what does variable mean and how is it different from a fixed-rate mortgage?”
With a variable mortgage, your rate will move in conjunction with your lender’s Prime lending rate, which in turn tracks the Bank of Canada’s rate, and will typically be quoted as Prime minus a specified percentage. It can be difficult to predict our economic future so you won’t know for sure what kind of rate ups and downs might be ahead of you.
With a fixed-rate mortgage, your payments are fixed for the term of the mortgage, which offers stability. Fixed-rates are usually better suited to first-time buyers or those who haven’t owned a home for a very long period. Ask yourself these questions: Do you like or need to know exactly what your payment is going to be over a longer period of time? Do you want to avoid the need to consistently watch rates? Do you have less than 20% down? If you answered “yes” to all or most, a fixed-rate mortgage could be the better choice for you.
A variable-rate mortgage is best suited to people who have a flexible budget and can tolerate slightly more risk. Ask yourself these questions: Do you watch market conditions? Can you handle any rate increases that could increase your payment? Do you have more than 20% equity in your home? If you answered “yes” to all or most, a variable-rate mortgage might best suit your needs. Most variables allow you to exercise an option to “lock in” a fixed rate at any time for the remaining portion of your mortgage term or longer. You can also set up your payments at what they would be if you took the higher rate, which helps you pay down your mortgage faster, and creates a financial buffer for you if rates rise later.
If the uncertainty of a variable rate is going to give you sleepless nights, you’re in good company. Many Canadians prefer the certainty of a fixed-rate mortgage. They know exactly how much they will pay over the term of their mortgage, and they can plan accordingly… with no financial surprises. However, lower-rate variable mortgages with a strong Prime minus offer give you the potential to save a lot on interest. And, if your circumstances change and you need to get of out of your mortgage, you will appreciate the lower penalty to get out of a variable versus a fixed-rate mortgage.
Your best option is to get professional and personalized advice. I would be happy to help you determine which option is best suited to your needs.
Source: Invis and Mortgage Intelligence
Happy Mortgage Client Testimonials
Excellent customer service, great product knowledge, easy to talk to-Lisa is a professional who enjoys her work and cares for her clients!
Trevor and Debbie
Lisa's kindness, professionalism and hard work made our purchase stress free. Thanks for everything and we cannot say how grateful we are as new residents to Saskatoon for all the help you have pro...
David and Mary
I have the opportunity to work with Lisa on a couple of occasions. She is professional and proficient in her job. I've appreciated her willingness to go above and beyond and explain all options av...
Bonnie C - Saskatoon
Lisa has a very strong, clear knowledge in her field. I've worked with several others in the past, and Lisa has trumped them all. She has answered all my questions, made me feel very comfortable an...
We really enjoyed working with Lisa. Her excellent service and pleasant personality had led us to refer friends and family to her and they have all been very satisfied with their transactions
Brian and Jennifer