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The-Mortgage-Gal

How risky do you feel?

There has been a lot of talk regarding fixed and variable rate mortgages and which one is best for you.

Prior to the new regulations introduced by FICOM on Oct. 19, most first-time buyers were encouraged to take a five-year fixed term because it allowed them to qualify at the discounted rate. 

Any mortgage that had a term of less than five years or a variable rate (floating rate) had to be qualified using the prescribed or posted rate of interest which was often two percent higher.

Since the new rules came into effect, many mortgage applicants—including conventional mortgages—are being qualified using the prescribed rate which is currently at 4.64 per cent.

This new change allows clients some flexibility in the term they select. 

The current five-year discounted rate is about 2.69 per cent for a five-year fixed while a variable rate is at prime minus-0.65 per cent, or 2.05.

The payment on a $100,000 mortgage at 2.69 per cent amortized over 25 years would be $457.48, while the payment on a variable rate would be only $425.87.

The decision should be based on your comfort level with risk as most economists are certain that interest rates will rise as opposed to drop or remain at the current lows. 

If you were to use the savings every month to pay extra on your mortgage, this would be a worthwhile as the savings would compound with the extra payments.

There are a couple of questions that you can ask yourself to help you determine which rate is best for you:

Do you need to know exactly what your payment is going to be over a longer period of time?

Do you consistently watch rates and market conditions?

Can you handle any sudden rate increases that could increase your payment?

If you answered “yes” to the first question, then a fixed rate is better for you.

If you answered “yes” to the last two questions, then you may want to consider a variable rate.



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About the Author

Laurie Baird and Tracy Head are mortgage brokers with Verico Complete Mortgage Services. Together they have over 45 years of experience in the mortgage industry.

As mortgage brokers, Laurie and Tracy spend time getting to know the people they work with and help them understand the mortgage process. They support their clients before, during, and after a home purchase.

Laurie and Tracy are able to offer their clients advice and options. With access to over 40 different lenders, Laurie and Tracy are able to match the needs of their clients with the right mortgage package. They work closely with their clients to find the right fit, and are around to provide support for years down the road!

Contact them at 250-862-1806 or visit:
http://www.okanaganmortgages.com

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 does not warrant the contents.

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