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.

Example:

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.