When we think variable vs fixed mortgage rates, we assume it’s an ongoing debate but here are several reasons why a variable rate mortgage may be the best way to go. People often fall for the fixed mortgage “trap” as banks often speak fear to the public that variable rates will soon increase claiming it’s an unavoidable risk.Being completely transparent, banks prefer 5-year fixed rate mortgages as they are in their favour. Variable rate mortgages are better for you, the mortgage holder, let us explain why.

Reality Check

Most people are stuck in fear that the variable rate is inevitably going to skyrocket for them. To set the prime rate, the Bank of Canada meets 8 times a year or every 6 weeks. The prime rate directly effects the variable rates, and the prime rate does not tend to change very often. Prime rate changes, as far as the history goes, is usually 0.25% of a point when it does change. The only way the variable will increase over the fixed rate is if the Bank of Canada ups its rates many times over which has not happened in history. From what we have seen historically, variable rate mortgages will be favourable for those who stick with it.

While fixed rates are quite low right now so are the variable rates.  If you are unsure which type of mortgage to opt into, we will usually suggest a variable rate mortgage as this will likely save you quite a bit of money in the long run. It is possible that your variable rate could become higher than the fixed rate in the future years. Most people assume that if the rate doubles that your current payment will as well. This is not correct, if your rate doubled your payment would increase by roughly 32%. Even though variable rates will increase at some point, you can sit back and know that during this period you will save a substantial amount of money making a future hike still worth the overall gain. Also consider the penalties that are usually involved within a fixed rate mortgage. Know that to exit out of a fixed rate mortgage early is capped with an interest rate penalty of 3 months. If you have more questions about fixed vs variable, please contact us and we will be happy to go over this in finer detail. We look forward to hearing from you.