The Bank of Canada has hinted at increasing mortgage rates in the near future. With this, many banks have already increased their fixed rates. I have had many discussions with people wondering what to do when it comes to getting a new mortgage or what they should do with their existing mortgage.
Fixed vs. Variable?
In my opinion there is not a right or wrong answer when it comes to fixed vs. variable. A fixed mortgage offers security with a set interest rate for the term of the mortgage whether it be for a 1-5, 7 or 10 year term. This is great for the Borrower who is very conservative and would be up at night worrying about a floating rate increasing. Historically, the security of a fixed rate mortgage has cost Borrowers money in higher overall interest paid as you can see in the chart. The other downside to fixed mortgages that doesn’t get talked about much is the potential to have what is called an “interest rate differential” penalty. This penalty can be as high as 4% of the balance of your mortgage depending on the lender.
Going the variable route does have inherent risk of not knowing your interest rate for the term of your mortgage. On the other hand it offers much more flexibility with a maximum 3 month interest penalty as well as the opportunity of locking into a fixed rate mortgage at any time (talk to us about our Variable Rate Guarantee).
I have a Variable Rate Mortgage, with rates increasing should I lock into a fixed now?
My quick response is no. With the Bank of Canada hinting that Prime Rate will likely be increasing in the near future we have seen the market and the lenders increase fixed rates. My belief is that locking in now at higher rates is comparable to selling all your stocks when the market is going down. Of course, there are many more factors that come into play such as your personal circumstance, goals, etc.
Should you have any questions about your specific circumstance don’t hesitate to reach out to one of our mortgage planners. You can find us at www.silvermanmortgage.com