Only the most devoted variable-rate mortgage believers are staying loyal today.
As your licensed Surrey mortgage broker, I can help you choose if fixed or variable rate mortgage is the best option for you. Having a comprehensive overview your financial situation is key in determining the best borrowing strategy.
Variable-rate mortgages have for decades been the savvy BC home owner’s go-to choice. You typically pay a lower interest rate for a variable rate compared with a fixed rate, and your borrowing costs adjust lower or higher when the Bank of Canada changes its overnight rate. When interest rates plunged after the last recession, variable-rate mortgages meant lower monthly payments.
For the moment, Surrey homeowners are largely avoiding variable-rate mortgages. Driving this trend is:
- Our slow-growth economy and its effect on interest rates.
- We now have short-, medium- and long-term interest rates that are very close to each other.
Variable-rate mortgages are influenced by short-term rates, while fixed-rate mortgages take their cue from longer-term rates. If both these rates are similar, the cost advantage of variable-rate mortgages is not as significant or beneficial.
One reason to still consider variable-rate mortgages is that you believe the economy’s weak spell in early 2019 signals a slump that will require the Bank of Canada to cut rates. However, there’s not currently enough reward to offset the risk of higher rates down the line.
Another reason to go variable, at least with a big bank supplying your mortgage, is that you might need to break your mortgage before the end of its term. The penalties for breaking a fixed-rate mortgage at a big bank are unconscionably large, but penalties on variable-rate loans are more modest. Note: Mortgage lenders accessible through brokers often have more reasonable penalties for breaking fixed-rate mortgages than big banks.
When interest rates return to a normal, expect variable-rate mortgages to regain their appeal. For now, homeowners seem to agree that fixed is better.
Surrey / Langley Mortgage Broker
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