FIXED VS VARIABLE RATES IN MORTGAGES

We sat down with mortgage guru Renee Huse and discussed a variety of mortgage topics, this REP TALK discusses variable vs fixed mortgages and Renee provides a fresh and unique perspective on why a fixed rate might benefit you more! You can also read our latest blog where we chat with Renee about one of our listings and the investment opportunity it renders. 

Renee often gets the questions (from our clients), variable or fixed, "what should we do?" she said that the answer changes often, and gave us insight as to what she would do in today's market. Presently we're seeing a very small differential between variable and fixed rates.  Five year fixed mortgages and variable rate mortgages in Canada are trading around 1.50%.  

Variable rate mortgages are primarily influenced by the Bank of Canada through their overnight lending rate, currently sitting at 0.25%.  Fixed rate mortgages are primarily influenced but the long term bond market.  With weakness in both the bond market and the government's current objective to keep money really cheap for Canadians, we're seeing historically low fixed and variable rates.  Right now, in Renée's opinion, it's hard to justify the risk of a variable rate mortgage simply because fixed rates are at historical lows.  

Variable vs Fixed Edmonton Mortgages

Renee is often asked about rates going up, and her response these days is that there is hardly any room left for them to go down!  We've seen countries like Denmark offer 20 year mortgages at 0%, but she doesn't think that will happen in today's market.  Renée thinks that interest rates will likely start to move upward in the next 18 months as we start to see some slow economic recovery on the back increasing consumer confidence due to a vaccine and a reopening for our small businesses.  

While fixed rate offer amazing security and the opportunity to secure VERY cheap money for your Real Estate related investing, they do come with a higher payout penalty than variable rate mortgages.  The interest rate differential payout penalty can be significant.  Variable rate mortgages only include a payout penalty of 3 months interest.  If you're planning on being in your home less that 5 years, this could be the better fit for you. 

Our mortgage specialist can sit down and go through a custom scenario that is tailored specifically to your situation and needs, ensuring you're making the best choice in this big mortgage decision.