Fixed versus variable – locking in?

With fixed rate mortgages being offered at record low interest rates, there has never been a better time to look at locking in your variable rate mortgage. So what should you do: fixed versus variable?

Is it worthwhile for all of us to lock in our old variable rate mortgages? That depends on where you believe rates will go over the next few years. Most economists believe the prime lending rate will not be changing for another year or more. While fixed rate mortgages seem to be relatively flat right now, it is highly un-probable that they will remain as low as they currently are.

If we look at a direct comparison of a $300,000 fixed rate mortgage locked in at 3.09% for 5 years or a variable rate mortgage at prime – 0.35% (2.65% at today’s rates) increasing by 0.50% each year, you would save $10,000 by being locked into a fixed rate mortgage.

Assuming that you are already have a variable interest rate mortgage with the old variable discounts of prime minus 0.85% (2.15% at today’s rates) but are already 1 year into the 5 year term, what would that look like? We’d compare it against our 4 year fixed rate special of 2.95%. In this scenario the variable interest rate represents a $1,100 savings over the fixed rate mortgage.

Ultimately, the lesson to be learned is that each situation is unique.

At YMS we are your trusted mortgage advisors. We are always happy to answer your questions and look at your financing needs with a personal perspective.