51646
50555
The-Mortgage-Gal

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.



More The Mortgage Gal articles

46460
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



51452
The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

Previous Stories



51684