Should I go fixed or variable?
This is a common question we get. The answer really is it depends on you and your risk tolerance.
Let’s talk about each one independently.
A variable rate mortgage is priced and affected by the bank of Canada’s overnight lending rate, which determines the bank’s prime lending rate, which is what variable rate mortgages are based on. The most important thing to consider when looking at a variable rate mortgage-and I’m really really passionate about this- in today’s uncertain economy and volatile market, I think it’s financial suicide to do a variable rate mortgage, with a bank or lender, who has absolutely no strategy or plan in place to watch that mortgage for you, throughout the coming months and years.
Let’s talk about the fixed rate. A fixed rate, obviously is that you get a rate today and it will stay fixed for the term that you choose.1 yr, 3yr, 5yr.whatever it might be. But let’s talk about something that’s really interesting about that. I think something we don’t often talk about is that people assume the fact that if I have a fixed rate mortgage for the next 5 years, that I have no risk if the market changes, or the volatility of the market. The reality is that, YOU DO. Particularly now, where we’re at record low interest rates.
If you get a mortgage today at a very low rate, and it slowly goes back up to the more normal rate as the economy improves over the next 5 years, when you come up for renewal, you’re going to be hit with a relatively nasty payment shock.maybe as high as 3 or 4 hundred dollars per month.increase your payment just like that.
We have a strategy called the inflation hedge mortgage strategy, which is specifically designed to protect you against this from happening. For more information on that, check out the video in our series called “the inflation hedge mortgage strategy”.
Thanks for watching
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