As a mortgage broker, I always get asked what product I would take. I am lucky since I am situated in Hamilton Ontario and my computers are always near me. I would lean towards a variable rate. My wife, who has no interest in where rates are and what might happen does not want worry is very satisfied with a fixed rate mortgage. And why not? With mortgage rates at record low levels, fixed rates have NEVER been more attractive.
Here is how Robert Floris would entertain a variable rate. Suppose my mortgage for example is $250,000 and my variable rate is Prime – .70 which today is 2.15% and the amortization is 25 years. My goals would be to pay this mortgage as fast as I can without missing anything in my normal routine.
I would not pay the lowest amount since I would be vulnerable to rate shocks. I would set up payments based on a 3.50% rate but apply it to the low variable rate.
Mortgage Amount $250,000
Amortization 25 years
Payment at 2.15% $1076.81
Payment at 3.50% $1248.18
But if you pay approximately $1248 on a 2.15% rate, the new amortization is 20 years, 8 months.
Remember, if your goal is to pay the mortgage faster you are saving approximately 4 years of payment or potentially $60,000. I know what if rates go up on the variable. Well realistically they will, but you are cushioning it with a 3.50% payment. If your goal is to pay the mortgage quickly, this is an awesome plan for the following reason:
Building in a lifestyle at this low mortgage rate (won’t have mortgage shock)
Paying the mortgage at the best time when the bank interest is at its highest
Hedging against an increase in mortgage rates
Paying the mortgage faster with less interest
This is how I would beat the bank and protect myself at the same time. We have executed this plan with many happy families.