Ever since the Bank of Canada raised its key interest rate, there is speculation that the rate will be increasing four more times over the next year. This has left a lot of people wondering if they should switch from a variable rate mortgage to a fixed rate.
I have been asked this question by many of clients as well. My question and answer to them is “Why did you choose variable rate when you got your mortgage? Was it for financial reasons or was it because you wanted to take advantage of the lower interest rate?”
Variable rate has historically known to be a better option in comparison, but that could change.
Since the variable rate tends to be lower than the fixed rate, more of your payment goes towards your principal. Another advantage of having a variable rate mortgage is that they have lower interest penalties. Statistics shows that this happens quite often.
Rather than worrying whether the rates are going to be increasing more over the next few months, you should evaluate your financial situation and risk tolerance. Determining if you should go with a fixed rate or variable rate depends not only on your tolerance for risk, but also if you would be able to financially handle the increase in your mortgage payments.
The one thing you have to remember is no one can predict where the rates are headed. Experts sometimes do get wrong as well. The decision you make regarding your mortgage should not be based on what you hear or read through various sources.
Most people opt for the fixed rate, but 6 out 10 people move before the term of the mortgage.
One of the steps you can take to determine which option is best suited for you, is meeting with a mortgage professional. During your meeting you can discuss your tolerance for rate increases, your needs and your future plans.