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Fixed or variable-rate?

“Wow!” you say to your spouse as you hit the brakes on the car. “Did you see the mortgage rate those guys are advertising?” 

Your worries are over, you’re thinking. Just lock in a rate like that for the next ten years, and you’ve got it made.

Not so fast. That rate may not be the one for you. Typically, the lowest available rate – and the one that makes the rate sign look great from the street – will be for a variable or adjustable-rate mortgage. That rate has the potential to be like a roller coaster. The posted variable or adjustable rate is the rate you’re getting today. Unless you have an economic Ouija board, you won’t be able to predict what kind of ups and downs are ahead of you.

Let’s take a closer look. 

A lender will offer different rates for different types of mortgages. The rates are determined based on financial risk – to the institution and to you. When a customer is willing to take on the risk, he/she is rewarded with a lower rate. If the lender is taking on the risk (that is, the customer is promised a particular rate regardless of what happens in the future), the rate is higher. The rate increases the longer the term of the mortgage, and the higher the risk for the financial institution.

So how do you decide? Fixed-rate mortgages, because they require a low risk tolerance, are usually better suited to first-time buyers or those who haven’t owned a home for a very long period. 

Ask yourself these questions: 

  • Do you like, or need, to know exactly what your payment will be over a longer period of time? 
  • Do you want to avoid the need to consistently watch rates? 
  • Do you have less than 20% down? 

If you answered yes to all, or most of these questions, a more conservative fixed-rate mortgage could be the better choice for you.

A variable or adjustable-rate mortgage is best suited to people who have a flexible budget and can tolerate higher risk. 

Ask yourself these questions: 

  • Do you watch market conditions? 
  • Can you handle any sudden rate increases that could increase your payment? 
  • Do you have 20% or more equity in your home? 

If you answered yes to all, or most of these questions, a variable or adjustable-rate mortgage might best suit your needs.

Some lenders offer a special promotional rate for the first few months of a variable-rate mortgage, which you should discuss with your mortgage broker. Also discuss what your rate will be based on – prime -.50-.60%. Most variables or adjustable rates allow you to exercise an option to lock in a fixed rate at any time for the remaining portion of your mortgage term, or for a longer term.

If the uncertainty of a floating rate is going to give you sleepless nights, you’re in good company. Many Canadians prefer the certainty of a fixed-rate mortgage. They know exactly how much they will pay over the term of their mortgage, and they can plan accordingly, with no financial surprises. But if rates do drop, and drop and drop, you are committed to the promise that you have made. 

Your best option - have a professional help you decide which option best meets your needs.


The reverse mortgage

For many seniors, their family home is a place of fond memories, as well as their biggest nest egg. Coupled with a familiar neighbourhood, neighbours and friends nearby, and the comfort of their local support network of doctors and pharmacists, it’s not surprising that 61% of all Canadians aged 45 to 60 plan to retire in their current homes.

According to the 2011 Canadian Retirement Snapshot by Ipsos Reid and HomeEquity Bank, 78% of retired Canadians hope to stay in their homes for as long as they can, with seniors in Atlantic Canada (76%), Saskatchewan (73%) and Manitoba (73%) expressing the greatest desire to stay put.

For homeowners aged 55 and over, a reverse mortgage such as the CHIP Home Income Plan can help seniors do just that by allowing access to up to 50% of the equity locked up in their homes. This equity can be turned into liquid tax-free cash to improve day-to-day cash flow, which will boost income during retirement, and help avoid downsizing to sustain an affordable retirement life. CHIP Home Income Plan is a simple and sensible financial solution ideal for seniors regardless of income, credit history or medical status, and allows seniors to maintain full ownership of their property. They are not required to service the interest nor repay the principal for as long as they own and live in their home.


With a CHIP Home Income Plan, you can:

• Supplement an insufficient monthly income by redeploying a portion of your home's equity into income generating investments

• Preserve investment assets without worrying about withdrawing RRIFs above the annual minimum or selling non-registered investments to cover living expenses

• Travel, invest in a hobby or small business, or assist children or grandchildren with educational or major expenses

• Hire extra hands around your house for seasonal landscaping, pool cleaning or last-minute home renovations and fix-ups before the winter

• Pay off debts and increase monthly cash flow


A CHIP Home Income Plan from HomeEquity Bank offers low rates to help seniors enjoy retirement on their terms. For details, visit my website http://www.okanaganmortgages.com and click on the CHIP box or call me at 250.862.1806 or email [email protected]

Renovations for rebates

Continuing with the renovation theme from last week, Fortis and Hydro have teamed up to provide a variety of rebates and offers.  

There are a couple of incentive programs available for renovations done to make your home more energy efficient. Here are a few of them:

Energy Assistance Conservation Program
This is a program to improve the energy efficiency and comfort of your home free of charge. BC Hydro & Fortis with the Energy Conservation Assistance Program (ECAP) provide income qualified account holders with a free home energy assessment.

Home Energy Rebate Offer up to $5300
Rebates are available for insulation, ventilation, and water and space heating upgrades. With an EnerGuide evaluation before and after the improvements you may qualify for another $500 -$750.

New Home Program up to $2000
Receive up to $2000 in incentives when you build an ENERGY STAR new home.

Combined Space and Water Heating System Pilot up to $1800
Replace both your water heater and furnace with one combined system and save up to $1800.

Energy Star Water Heater program up to $1000
Replace your old hot water heater with a qualifying natural gas Energy Star model and you could save energy, and qualify for up to $1000 in a rebate.

All of these renovations can be included in your existing mortgage, and either financed before completion if you have enough equity in your property, or after the improvements have been made.

It is important to talk to your existing mortgage lender to find out if there would be a penalty, or if the mortgage can be increased and the rate blended. Some lenders will allow a home equity line of credit to be registered behind their mortgage is second position. This is a good option as the payments are interest-only. and the credit line is fully open for repayment.

For more details on these programs visit: Renovation rebates and savings from Fortis  & BC Hydro or call us at 250.862.1806 or email [email protected]

Perfect (reno'd) home

How many times have you found a home in the perfect location, but it needs too much work as per the home inspection?

There is a great program available through most lenders that will allow you to add the costs of renovations to your purchase price, and finance them over the life of the mortgage. This program can also be used to update a home that is showing wear and tear. or has dated finishing.

Here are just a few advantages to using this program rather than using other sources of funds:

1)   If you have the money for the renovations, you can use this as part of the down payment and save on the insurance premium if you have less than 20% down.

2)   The payments on the renovations are amortized over 25 years, so the monthly cost is minimal compared to a personal loan.

3)   If the renovations are to be done within the first five years of ownership, chances are that there will not be enough equity to refinance during that time to complete the renovations, and legal & appraisal costs will need to be paid again.

4)   You can have all of the renovations done when you first move in before your belongings are unpacked.

There are two programs available:

The small renovation which is a maximum of 10% of the purchase price.

The draw renovation that is over 10% of the purchase price.  

The advantage of the first program is the ease of advancing funds and low costs. The purchaser is required to get an estimate for the renovations that they wish to do, and these are added to the purchase price for financing, then the minimum 5% downpayment is required based on the new cost. On closing, the money for the home is advanced and the balance of funds are held with a lawyer until the work has been completed. Once the work is completed, the lender will require paid invoices or an inspection from an appraiser before the funds are released to the purchaser.

The larger renovation is similar, but the cost of the renovations are held back by the lender and released as draws, which involve some increased legal costs. The property is appraised to determine the ‘as improved value’, and this value is used to determine the downpayment required.

Here are some of the renovations that can be included in the mortgage financing:

1)   Kitchen updated including flooring, counters and cupboards

2)   Flooring and painting

3)   Replacement of roof, hot water tank and furnace

4)   Adding a basement suite if legal or licensed

5)   Building a garage

6)   Replacing windows, doors and insulation

If you find a home you like but it needs renovations, make sure you ask about purchase plus improvements.  


For further information on this program or to find out if you would qualify please call 250.862.1806 or email [email protected]

More The Mortgage Gal articles

About the Author

Laurie Baird is a Mortgage Broker with Verico Complete Mortgage Services. She has been in the mortgage business since 1991 and a broker since 1997. 

As a Mortgage Broker she is able to match her clients' needs with a lender who will provide them with competitive rates and products.

Laurie has a Bachelor of Education degree from UBC.

Contact Laurie at 250-862-1806 or visit:

Visit Laurie's blog at: https://www.okanaganmortgages.com/blog

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet presents its columns "as is" and does not warrant the contents.

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