October 17th 2011- for immediate release
Has the pendulum ever swung over the last year in terms of fixed or variable-rate mortgages!
Reports show us that 88% of the time you will get ahead with a variable rate. And besides the always predictable pay out penalty with the variable rate mortgage that people enjoy compared to the ugly interest rate differential (IRD) payout penalty that can come with a fixed, the spread and cost of security are making more attractive regardless of the ugly trait.
This may be the 12% of the time where going fixed will be the new trend – until rates start to rise.
Here’s why using a 300k mortgage example using rates from the beginning of
-Variable-rate mortgage at 2.2% is $1138 month -Fixed at 3.89% is $1405 a month -Cost of security is $270 a month
As variable-rate mortgages are less profitable for lenders while cost effective for Canadians, the gap has been reduced knowing that rates are expected to remain low over the next while.
-Variable-rate mortgage at 3% for $1262 a month -Fixed at 3.29% for $1309 a month -Cost of security is $47 a month
This change in fixed versus variable rates is a difference of $223 a month in the cost of security. So for many Canadians, fixed represents a much more comfortable solution.
For first-time homebuyers, one of the most popular choices is a fixed rate as it also helps them qualify for more house. With a variable rate, they must qualify at the Bank of Canada qualifying rate, in most cases, allowing them to purchase on average 30% less house.
Think a fixed rate will protect you from rate change? Guess again! If you don’t manage your mortgage with inflation via an ongoing strategy, when mortgage rates return to normal levels you can have payment shock – even after paying your mortgage for five years of up to $300 a month in the above example.
Bottom line, if you can get a variable rate at Prime Minus 25 or below, it should be a primary consideration. When the spreads get this close, however, a fixed should be your first consideration.
But keep in mind that each option needs to be managed properly so you’re optimizing your mortgage product. Timely information is the key to your success, whether you choose fixed or variable.
Angela Calla is a licensed Mortgage Broker with Dominion Lending Centres, AMP of the Year in 2009, one of Canada’s top mortgage experts and Host of The Mortgage Show on CKNW AM 980 Saturdays at 7pm based in Vancouver, BC.
Angela Calla, AMP
Host of “The Mortgage Show” on CKNW AM980 Saturdays at 7pm
Facebook: Angela Calla Team, AMP Your Mortgage Expert Toll Free: 1-888-806-8080
Apply Online: www.angelacalla.ca