Advantages Of A Variable Mortgage

I happen to be a personal fan of the variable rate mortgage. Here’s why:

1. Save On Penalties

Statistically speaking, Canadians are very likely to break their mortgage prior to maturity, and the penalty can be severe if you are in a fixed rate mortgage. We’ve seen penalties over $20K for breaking the mortgage early!

Why do people break their mortgage? The list is exhaustive:

• Refinance
• Want a better rate
• Divorce
• Moving
• Loss of job
• Selling
• Sickness
• Downsizing
• Sudden windfall of money from inheritance, gift, lottery…

Can you port a mortgage to avoid breaking it?

Yes – USUALLY you can BUT you will need to re-qualify like it’s a completely new mortgage.

Can you pay down your mortgage without penalty if you are in a fixed rate?

Usually – but only to an extent 15-20%.

On the other hand, if you break a variable rate mortgage, your penalty is likely 3 months of interest no matter how long into the term you are or where rates have gone during the term. This gives you the ultimate flexibility.

2. Immediate Savings

As of the writing of this article, variable rates are sitting around 1.5% and fixed rates are sitting at >2%. So if you take a variable rate mortgage today, you are immediately saving 0.5% or more, from day 1.

Will the rates go up and will that gap shrink or even flip?

Probably. But how long will that take? The longer it takes for you to catch up, the more savings you will realize in the meantime.

3. Locking In

Tired of the fluctuations and getting nervous? No problem – if you change your mind and want to lock in the rate, you can do so at any time.

Advantages Of A Fixed Rate Mortgage

Why choose a 5 year fixed rate mortgage?

Simply put: (perceived) peace of mind. A lot of it comes down to individual personality. If you are on a tight budget, you can’t risk any potential swings in your mortgage payments, and it helps you sleep at night, then a fixed rate may be right for you.

When you lock into a fixed rate, you are guaranteed that rate for the term of the mortgage, BUT, beware the penalty!!!