Mortgages – Variable or Fixed Rates?

Should I choose variable or fixed rates on my mortgage? Before fixed rates dropped to the all-time lows seen earlier this year the argument for selecting a variable rate mortgage was pretty convincing. Lower rates, lower payments and, in the long term, less interest paid than on a fixed rate mortgage.  For these reasons a majority of new or renewed mortgages were being written on a variable rate product.

Then 5 year fixed rates dropped below 3%, bottoming out at somewhere near 2.74% before leveling off.  With fixed rates equal to, and in many cases lower than, variable rates these arguments became less compelling, and we began to see a shift towards fixed rates.  Similar payments and a fixed rate guarantee for the full term, coupled with a fear of the central bank’s Prime Rate being increased, were sufficiently motivating and we saw most clients selecting the fixed rate option.  We also saw many existing clients early renew their mortgages, or refinance, to take advantage of these low fixed rates.

Now, with the 5 year fixed rate sitting at around 3.40% and variable rates being offered as low as Prime -0.40% (currently 2.60%), the question again arises “which is better?”

The good news is the answers are pretty much the same. Historically borrowers will pay less interest over a 25 year amortization (and presumably over a longer amortization as well) with a variable rate mortgage than they will with a comparable fixed rate mortgage.  With rates being closer now than in past these savings might not be as significant, but there should still be a recognizable difference.

So, what is better for you?  That’s a question we can help you answer by doing a review of your financial situation.  There are other factors that must be taken into account before answering this question and it’s therefore important to spend some time with us to go over the complete picture before making a decision.  Call us at any time to discuss this in more detail.