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Thursday, December 16, 2010

Choosing Between Fixed and Variable Rate Mortgages

Finding comfort and peace of mind can go a long way in making the right choice.
With interest rates starting to creep up from their historic lows, many Canadians are starting to ask the question, “Should I lock into a fixed rate mortgage or go with a variable rate”? 
 

Fixed vs. Variable
With a fixed rate mortgage the interest rate you pay is fixed for a specific period of time or term, as is your monthly payment.   For some, the stability and security of knowing exactly what their monthly payment is provides a sense of comfort and security which off-sets the fact that they will be paying a higher interest rate in comparison to a variable rate mortgage.
Variable rate mortgage interest rates are typically lower than a fixed rate mortgage.  Unlike the fixed rate mortgage however, the interest rate can change during the selected term, typically following any changes to the bank’s prime lending rate.  The monthly mortgage payments with a variable rate can be fixed, or they can change with interest rate changes, depending on the lender and type of mortgage product you select.
Some lenders offer interest rate caps or convertibility features with their variable rate mortgages, offering some protection against rising interest rates and / or giving you an option to convert to a fixed rate during the selected term.  
A note on qualifying for a variable rate mortgage; recently the Canadian government took steps to help home buyers not get in over their heads by increasing the interest rate lending institutions are using to qualify potential borrowers.  At the time of publication, the average lender was using a qualifying rate of approximately 6%.  This means that for a borrower to qualify for our variable rate mortgage of 1.85% the borrower must demonstrate that they qualify and meet the financial requirements for a 5 year fixed rate at 6%. 
So which type of mortgage is better for you?
In the final analysis, your decision to go with a fixed or variable rate mortgage should depend on your personal financial situation including your tolerance for risk.   A good mortgage agent will help you sift through and identify the best mortgage products available to you based on your financial situation and needs.  A great mortgage agent will make sure you choose a mortgage with terms and conditions that will also provide you and your family with comfort and peace of mind.  

If you have any questions about this article or if you would like to explore your mortgage financing options please call 416.303.4480 or visit my website at http://www.thescooponmortgages.com/
Domenic Mirabelli
Mortgage Agent
Lic # M10000364
416.303.4480

“Helping you find a mortgage and peace of mind”

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