The savings gap on an adjustable rate mortgage in Midland? Right now it’s a year’s salary
A variable on a fixed rate has been turning heads lately. But is it the right choice for you?
That’s a lot of savings on a 5-year mortgage term, based on True North Mortgage’s current variable rates versus fixed rates. But it can take a lot of savings to convince homeowners to take on the variable risk – the potential for interest rates and payments to fluctuate over the life of their mortgage.
The savings above (one year’s salary for some) assumes that this spread between rate types will stay the same – it probably won’t. Variable rates (linked to fluctuations in Bank of Canada rates) are expected to rise over the next two years, which could reduce this windfall of savings by the end of the 5-year term. Yet fixed rates have also been climbing lately, so only time will tell if this large rate differential will continue to hang on.
Usually fixed rates are at least a little higher than variable rates because they guarantee that your rate won’t go up and your monthly mortgage payments won’t go up during your term (and therefore you pay more for that security) . But despite the risk of increased payments, these variable savings are a little hard for some to ignore and it upsets the choice of mortgage rate.
Why is your fare type such a big decision?
Because each has a different impact on your mortgage affordability and your monthly budget. Generally, most Canadian home buyers prefer fixed rates and the budget certainty they offer. Before the pandemic, around 60% of customers opted for fixed and around 30% chose variable. Now? Thanks to the growing gap between these two types of rates, more than 55% opted for the economy of a lower variable rate. This includes first-time buyers, who face a greater hurdle to access overvalued housing markets, and who have chosen higher savings over budget predictability.
What type of rate suits you best?
Despite the obvious savings right now, it’s not necessarily a flawless decision. The choice may come down to your financial situation, the details of your mortgage qualification, and your level of comfort with changes in rates and payments. Not everyone has the ability to adjust their budget to the variable nature of an adjustable rate mortgage. A fixed rate mortgage may come with a higher rate, but for those whose monthly budget is “king”, the extra cost may be worth it.
What does a lower variable rate likely mean to you?
- Save thousands compared to a fixed rate
- Pay more on principal
- Save more on interest charges
- Payments increase if prime rate increases
- Pay lower penalties if you decide to break your term
- Need advice on switching to a fixed rate
What does a higher fixed rate likely mean to you?
- Protected against rate hikes
- Regular payments during your tenure
- Possibly higher monthly payments compared to a variable rate
- Pay more for interest charges
- Pay higher penalties if you decide to break your term
- Need your best fixed rate to save more
The good news? You don’t have to make this decision alone.
A highly trained mortgage broker in your area can help you narrow down all your options and give you access to multiple lenders on your behalf to get your best possible rate – variable or fixed – with a flexible mortgage that’s right for you. In fact, the right broker can also help you see the fine print of your “low rate” mortgage, to make sure it doesn’t come with restrictions or hidden fees that end up costing you more. provided that.
While you consider your fare type, fares may increase. At True North Mortgage, they have access to multiple lenders, including their own in-house lender, THINK Financial.
True North Mortgage has seen several fixed rate increases in recent weeks as lenders react to market conditions. If you contact them today or apply online, they may hold your best rate (which you qualify for) for up to 120 days, to protect you against further increases (for a while, at least) .
Need mortgage help? True North Mortgage is here to answer all your questions and maintain your best rate. Just follow the link to speak with an expert broker or apply online (it’s easy, free and without obligation). Canada’s #1 Mortgage Broker