Fixed or Variable: Now may be the time to rethink that choice
Matrix Mortgage Global – Fixed or Variable: Now may be the time to rethink that choice
The Bank of Canada raised its benchmark interest rate in July. For the fourth time in the last year. And many experts are expecting it to go up again this fall. This means that homeowners in variable interest rate mortgages are watching as their rates rise. Some may be wondering if this was the right mortgage decision after all.
What’s the difference between a fixed term and a variable mortgage?
A fixed term rate means that you will pay the same amount of interest for the duration of the mortgage. The major benefit to this being that you will always know how much you are paying and what percentage of that will be going towards interest. Another benefit is in the event that the benchmark rate set by the Bank of Canada goes up, your payment will not. The drawback is that the interest rate is usually a little bit higher than with a variable and that means that your monthly payments may be higher.
A variable term means that your rate is based on the prime interest rate and subject to fluctuations that may or may not be in your favour. As mentioned, the last year has seen four rate hikes and those with variable mortgages are seeing that impact their interest rates. Some even getting close to what they would have paid going with a fixed in the first place.
What is right for you right now, may not be right for you long term. But it’s important to take your own situation into consideration. A fixed rate mortgage will be more expensive to get out of than a variable… so if you think you might want the lower rate offered by choosing a variable and you want to move to a fixed later on that is a possibility. But, if you commit to a fixed rate, you are better off to make sure you will be able to maintain that as it’s more expensive to move to a variable later.
According to an article printed by the CBC economists expect to see another rate hike by the Bank of Canada as soon as next week. So now may be the time that you want to make that change from a variable to a fixed. The drawback, of course, if interest rates go down, you will no longer be privy to those benefits.
There is no right or wrong choice, it’s really up to you, your goals and your personal finances. If you are comfortable riding out market fluctuations it may be worth it in the long wrong to choose a variable. If you like knowing what to expect for the duration of your term a fixed rate may be worth the extra money you may spend.
If you would like your mortgage reviewed or help in determining whether a fixed or variable rate mortgage is best for you, one of our experts would be happy to speak with you.
At Matrix Mortgage Global, we can help you get started on this path. Call us today at 1-877-371-5293.