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- Sep 14, 2007
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- 617
Here is our latest blog post....comments welcome!
To be or not to be? To fix or ride the variable rate mortgage? Many investors and home owners ask themselves this question when getting a mortgage for their home. I know this because quite frankly I get asked this question on a weekly basis and I was once asked this very question 5 times in one day! This is a hot topic!
Right now there is a large spread between the 5 year fixed rate @ 4.25ish and the 3 year variable at prime (2.25%) minus 0.25 to 0.5. To anyone selecting a mortgage that is thousands and thousands of dollars.
In the chart below I have three scenarios: Variable rate rising slowly (0.5%/year), average (0.75%/year) and high (1.25%/year)
By the graph of interest rate increases you will see that the variable rate will cross the fixed rate at some point in time in the five year period. If the area above the fixed line is less than the area below the line than go variable. If it is equal it doesn`t mater but if it is greater then go fixed.
Is it really that simple? Well yes and no. The trick is estimating how quickly the Bank of Canada will raise rates. My personal take is that Mark Carney is going to raise them on the slow to average range so we have 95% of our current mortgages in a variable product.
The other thing to consider when going variable is that rents will generally rise and fall with interest rates so you always have a spread to work with. As an investor this can be a great tool but you have to actively manage your assets!
Some interesting facts for you: most first time home buyers get a fixed rate mortgage. Everyone else typically goes variable.
Lastly, we always budget our properties for a fixed rate mortgage but then purchase a variable rate product. In our minds the fixed rate product is the worst case scenario!!
I hope this helps in choosing your next mortgage!
To be or not to be? To fix or ride the variable rate mortgage? Many investors and home owners ask themselves this question when getting a mortgage for their home. I know this because quite frankly I get asked this question on a weekly basis and I was once asked this very question 5 times in one day! This is a hot topic!
Right now there is a large spread between the 5 year fixed rate @ 4.25ish and the 3 year variable at prime (2.25%) minus 0.25 to 0.5. To anyone selecting a mortgage that is thousands and thousands of dollars.
In the chart below I have three scenarios: Variable rate rising slowly (0.5%/year), average (0.75%/year) and high (1.25%/year)
By the graph of interest rate increases you will see that the variable rate will cross the fixed rate at some point in time in the five year period. If the area above the fixed line is less than the area below the line than go variable. If it is equal it doesn`t mater but if it is greater then go fixed.
Is it really that simple? Well yes and no. The trick is estimating how quickly the Bank of Canada will raise rates. My personal take is that Mark Carney is going to raise them on the slow to average range so we have 95% of our current mortgages in a variable product.
The other thing to consider when going variable is that rents will generally rise and fall with interest rates so you always have a spread to work with. As an investor this can be a great tool but you have to actively manage your assets!
Some interesting facts for you: most first time home buyers get a fixed rate mortgage. Everyone else typically goes variable.
Lastly, we always budget our properties for a fixed rate mortgage but then purchase a variable rate product. In our minds the fixed rate product is the worst case scenario!!
I hope this helps in choosing your next mortgage!