Variable or fixed-rate mortgage, that is the question

The decline in interest and prime lending rates is providing investors with unique opportunities – but with uncertainty still ahead, the question remains: variable or fixed-rate mortgage?

Given the state of the economy, it’s more appealing to secure a variable rate mortgage, says one mortgage broker, but the fixed-rate mortgages have also become more attractive over recent months.

“It’s a win-win situation that is based on an individual client’s risk tolerance and personality, as well as their personal and financial situation,” said Rob Jennings, a mortgage broker with Verico East Coast Mortgage Brokers.

“It’s important for a broker to discuss the prime rate and its history as well as recent forecasts, the economy and economic factors like the oil plunge, the different penalties of fixed and variable, the flexibility of each product, and of course, the difference in the payments,” he continued.

“That said, a lot of my clients go for fixed because there is more security in the marketplace.”

All of these factors are playing large in the minds of investors who are capitalizing off historically low rates across the country, for both commercial and residential investments.

Some economists are already predicting that the Bank of Canada could drop the interest rate further, some as low as 0.5 per cent.

What’s more, Canadian bonds are also at record lows, which also has a direct impact on long-term mortgage rates, something economists say could drop down to as low as 2.6 per cent.

Multi-family properties are selling like hot cakes out west and given the cap rates, which are anything from 3.5 to four per cent, investors are cleaning up.

Multi-family mortgage loans are among the lowest in commercial rates because landlords can apply for insurance with the CMHC.

Shaadi Faris, VP of Intergulf Development Group in B.C., said that he’s seeing opportunities pick up with a lower dollar and lower interest rates, both of which are spurring investors to get involved.

“There’s a call in the province to advance spending and really invest in infrastructure, which could provide opportunities for investors,” he added.

“The money is cheap right now, but on the other side of things land prices and sites are really hard to find, especially in Vancouver.”

Depending on the type of property, an investor’s long-term financial picture, job security and other factors, the choice of whether to go with variable or fixed-rate mortgages weigh heavily on long-term outlook, a mortgage broker from Atlantic Canada said.

“If a client is very close to the maximum debt ratio authorized, we usually suggest and recommend at least a five-year fixed rate, to ensure – if ever there was an increase in rates – it would not affect their budget,” said Mathieu McCaie, a mortgage broker with The Mortgage Group.

“If a client has a good net worth, flexibility in their budget, knowledge in the marketplace and they keep an eye on the economy, I strongly believe that there is potential savings in taking a variable rate for at least a couple of years.”
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