Fixed vs Variable Rate

One of the first questions we hear from our mortgage customers is, “What is the best rate?” and “Should we take a fixed rate or variable?” The real question is, “What is the better option for you?”

Borrowing money to purchase a home comes with an inherent risk. You are borrowing a large amount of money and will most likely have a mortgage longer than the initial five year term. During the life of a mortgage, the term and rate will be renegotiated four to five times. Therefore, it is more about financial planning. During the time you have a mortgage, your decision could be right and it could also be wrong. You have to make a decision and accept that decision for the term of the mortgage.

The variable rate foes give you a slight edge over the fixed. The variable term may be converted to a fixed rate at any time with no cost. If the choice is made to go fixed, think of it as being in the penalty box for the term. You cannot get out without a cost. There is a cost to either decision.

Buying a home is one of the biggest decisions you will make in your lifetime. Paying off the mortgage as soon as possible should be your goal, not trying to predict where the interest rates are going.

Here are some important tips when getting a mortgage:

  1. Budget your mortgage payments for the life of the mortgage, not the initial term. How do you do this? Always assume interest rates will be higher than what you are paying. By doing this you will pay more against the mortgage than is required.
  2. Pay an accelerated bi-weekly or weekly mortgage payment.
  3. Budget for lump sum payments. Making these payments during the initial years of the mortgage are effective in attaining your goal of being mortgage free.
  4. Make a financial goal to be mortgage free.

All this is not radical or even something new. Mortgage rates are a moving target. Trying to predict mortgage rates is a game that will cause unnecessary stress. Paying off your mortgage will relieve stress. Interest rates will always be part of the story, but not the whole story.