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Time to fix my mortgage?

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MagJoe | 07 Nov 2014, 09:33 AM Agree 0
I keep seeing all the press about interest rates going up I’m about to refinance, should I lock into a fixed rate? They’re higher cost right now though.
  • Chuck Jansen | 07 Nov 2014, 02:02 PM Agree 0
    Magjoe, every clients situation is unique and any advice provided should be based on a complete assessment of your circumstances and future plans.
    Having said that in my opinion, and generally speaking going with a variable rate mortgage is better than locking in right now but I could make a case for either way. It just depends on your risk level, how strong your finances are, how much debt you have etc. etc.
  • D. Morton, Mortgage Agent | 07 Nov 2014, 02:35 PM Agree 0
    Over the past 10 - 12 years, we have seen a significant decrease in the Bank of Canada Rate, in which the Bank's PRIME Rate follows suit.
    As a Mortgage Agent, I have never advised a client to take a Variable Rate over a Fixed Rate or 'vice versa' - it must be their choice!
    However, what I can do, is give them information on both 'variable' and 'fixed' rate products, to help them to better understand how each of these types of rates work.
    I advise clients to look at their investment portfolio, if they have 'mutual funds', they realize how quickly the stock market can change and this is somewhat indicitve of Variable Rates, even Fixed Rates.
    As you know, Fixed Rates go with the 'bond market', which is the stock market, and this can change daily. The change may not be enough to change current fixed rates, however, this can happen. The security of a 'fixed' rate, is the length of time you choose to 'lock in' this rate.
    Variable Rates go with the 'Bank of Canada' / Bank's Prime Rate, and this can also change depending on different factors in the economy.
    This type of Rate is not guaranteed - it can change many times over the term the client may choose. Most Banks/Lenders have offered a 'discount' off of Prime Rate, to entice a client to take this product - this 'discount' is guaranteed for the time the Bank/Lender offers it - usually for the entire term the client has chosen. However, some offer a larger discount at the start, with a smaller one, to finish off the term chosen.
    My advise is if you want to invest in 'mutual funds', but cannot sleep at night, worrying about what the stock market may or may not do, then you should not be in a 'Variable Rate' mortgage product.
    If you are on a 'fixed' income, ie: pension, you may need the security of your mortgage payments being 'fixed' for a period of time. If you cannot afford an increase in your monthly mortgage obligation, you may want to strongly consider a 'fixed rate' mortgage product which will give you the 'fixed' payment for the term you choose.
    In the end, it should always be the client's choice, however, we can show them pro's and con's for both, to give them a truer picture of what to expect.
  • MagJoe | 07 Nov 2014, 03:44 PM Agree 0
    @chuckjensen Thanks for the advice. I’m curious though. Based on your experiences/circumstances, what makes a variable rate mortgage better than locking in? My finances are relatively stable and secure, and I have minimal debt.
  • Omer Quenneville | 07 Nov 2014, 04:45 PM Agree 0
    Variable... is my best advice with limited knowledge. But to be frank, I don't know when it is good to take fixed. Avoid collateral charge (TD).
  • M Shanks, Mortgage Advisor | 07 Nov 2014, 07:50 PM Agree 0
    Better is a hard word to use in this case. Both fixed and variable have their upsides and downsides. Yes variable rates are typically cheaper than fixed rates at time of closing, but that comes with inherent risk that has already been discussed. Fixed rate mortgages are easier to qualify for, but if qualifying isn't an issue, a good hard look at your situation is needed before choosing between the two. It's a very vague statement, but the following questions come into to play when trying to decide;

    1. What are your plans with the property? Is there a chance you could be selling in the next few years or is this your homestead for the foreseeable future? (Variable rates offer a better penalty structure for the consumer)
    2. How much do your mortgage payments effect your lifestyle? If variable rates go up, how will an extra $250 per month effect your budget? (Please note, this is something you need to consider with fixed rates as well!!! You may be locked in at 2.99% today, but what happens to your payments 5 years from now if rates are at 5%? Yet another reason why working with a proactive Mortgage Advisor is key to protecting your largest investment)
    3. What is your strategy for paying down your mortgage sooner? Is that strategy better suited for fixed or variable?
    4. MOST IMPORTANT!!! If you decide you want to go ahead with a variable mortgage, PLEASE ask questions and ensure you know the difference between a 'Variable Rate Mortgage' and an 'Adjustable Rate Mortgage'! These terms can cost you tens of thousands of dollars over 5 years if you do not properly understand how you have been setup
  • Kuldip S Panear Homeland Mortgage crop. | 09 Nov 2014, 08:51 PM Agree 0
    This can only be advised after having your other information like your income stability, mortgage amount, mortgage to value ratio, your risk bearing capacity. After having all this information only then it can be advised which is suitable for you.
  • Roy @ YourMortgageYourWay.ca | 10 Nov 2014, 01:49 PM Agree 1
    Rates are going to be steady (they have been saying there will be rate rising for the past 8 years). If you would like to know what rates are doing you should visit this website -- http://www.bankofcanada.ca/rates/interest-rates/canadian-bonds/ -- you can track the long bond yields and see where rates are going. Personally, if you have a variable rate mortgage and your discount is prime -.30% or less you may want to see if you can get prime-.75% (you should save your penalty in about a year).

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