Should I Go Fixed or Variable?

One of the common questions I get from Kitchener Waterloo real estate buyers is should I go with a fixed or variable rate mortgage?  Regular readers of this real estate blog know that I usually focus on real estate questions but today I'll offer up my opinion that variable is clearly the way to go.  

With Tuesdays announcement, Stephen Poloz, the new governor of the Bank of Canada, opted to continue what were once touted as "emergency" interest rates citing weak economic growth.  The common thinking now is that it will be late 2015 or 2016 before rates rise.  Further, he didn't rule out the possibility of a rate cut!

So why go variable?  Lower rates equal less interest and more principal paid.  Variable rate mortgages are currently available at Prime - .55% or 2.45%.  Five year fixed mortgages are in the range of 3.5%.  Note, variable rate mortgages give you the flexibility to lock in should rates begin to rise. 

Further, the biggest penalty you'll ever pay to break a variable rate mortgage is 3 months interest while those with fixed rate mortgages will likely find themselves having to pay significantly more.

One final overlooked reason is peace of mind.  Variable rate borrowers undergo "stress-testing" as part of the mortgage underwriting process as they must qualify at the Bank of Canada qualifying rate currently set at 5.34%.  Buyers can sleep at night knowing they haven't overextended themselves should rates rise.

As always, for sound advice on your real estate needs, feel free to call, text or email 519-505-4488



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Jeff Gingerich

Jeff Gingerich

Sales Representative
CENTURY 21 Heritage House Ltd., Brokerage*
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