The Variable or Fixed Rate Dilemma
Variable or Fixed rate? This is a question that people often pose to me. I always provide the same answer which is, “it depends”. The reason being, is that it’s truly a decision that is specific to each individual. The difference between the two rate types is that with a variable rate your payment amount can change throughout the term of your mortgage. This will happen as the prime rate fluctuates. It could go in either direction which is why a variable rate can be risky. A fixed rate simply means, it is fixed and your payment will not change until your mortgage is up for renewal. Myself personally have reaped the benefits of a variable rate mortgage. Have I ever panicked as rates started to increase? Absolutely, and yes I chickened out and ended up locking in to a fixed rate unnecessarily. You have to be able to mentally handle the risks that come along with it. No different than investments. If your plummeting balances cause you sleepless nights it’s not worth the stress. If you are able to brush it off and stick around for the long haul it’s definitely something to consider. It’s not just mentally being able to handle the variations, your income and future earning potential should be taken into account. If an increase to your mortgage payment isn’t going to break the bank, it’s worth considering. On the flip side, if you are a first time home buyer on a strict budget you may take comfort in knowing you will have the exact same payment for the next 5 years. Again, it boils down to the level of risk you can tolerate.
Variable rates are a hot item at the moment as fixed rates have been increasing. This provides clients with great rates that can be as low as Prime – 1.09% which currently equates to 2.36%. Fixed rates are nowhere near that, which is why variable rates can be so attractive. It’s important to weigh out all your options whether your mortgage is up for renewal, you are refinancing your existing mortgage or purchasing a home. The variable or fixed rate dilemma doesn’t have to be dreadful. A mortgage professional will have access not only to numerous lenders, but also the tools and calculators necessary to help in the decision making process. Being informed and having the confidence in your decision should be your number one priority. After all, it is your financial future.