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A Mortgage Broker’s Take on Variable vs. Fixed-Rate Mortgages

It might seem that, with the incredibly low mortgage interest rates these days, it would be a simple decision to choose a fixed-rate mortgage over a variable-rate one. Is it really a slam dunk? It might surprise you to learn that many a mortgage broker is cautioning their clients to put a bit more thought into the decision. No two families are the same, so it is still wise to have your mortgage broker assess your current situation and long-term financial goals before choosing.

One fact to understand is that variable-rate mortgages usually have lower prepayment penalties than fixed-rate mortgages. Instead of paying the penalty based on three month’s interest, you’ll face the interest rate differential penalty, which is considerably higher in most cases. You may not have a crystal ball to know how long you will remain in your home, but it never hurts to examine the “what-ifs” so you are not blindsided if a great promotion across the country requires selling your home.

Another reason why your mortgage broker might recommend a variable-rate mortgage is that you can lock your variable rate into a fixed rate down the road without breaking the mortgage. You are leaving yourself open to options. You can’t go from a fixed rate to a variable rate.

Getting back to that crystal ball, the question on your mind is where the variable rate will go. With the toll on our economy from the pandemic, most believe it will not be a slow process to stabilize and grow again. It stands to reason that mortgage interest rates won’t go on the upswing until we are stable again. Even then, it is doubtful the Central Bank of Canada will want to upset the applecart by jumping rates up quickly.

At Donna Mullen & Associates, we go over all options with our clients and break it down into real numbers so you can weigh the difference. When you look at the difference between variable rate and fixed rate, your mortgage payment might not be significantly different. We will also look at other factors that can be even more important than the interest rate, such as prepayment privileges and penalties. Reach out today if you would like to learn more about the educational advantages of working with us as your mortgage broker.