With everyone anticipating that rates will continue to increase, variable rate mortgages are become less desirable than they have been in the past.

Over the past decade, interest rates have been historically low so this has carried little risk for people holding variable rate mortgages. However, the uncertainty with interest rates now may carry more risk than customers can afford.

The difference between a variable rate mortgage today and a fixed rate today may not be worth the risk. If the “spread” were higher, it might be.

Currently the prime rate is at 3.25%. Variable rate mortgages are under 3% generally but the 5 year fixed rates are in the low threes. With such a small spread, it makes the decision pretty easy for people signing up for new mortgages.

A quarter of a percent increase could represent hundreds of dollars a month increase in payments. So the question is: could you afford such an increase? What kind of personality do you have? It is important to be able to sleep at night!!

The trend in rates seems to be up and they are not likely to come down anytime soon.

She says that even in spite of the drop in home values recently, they still increased in value year-over-year.

The good news is that if rates continue to keep climbing and you are in a variable, you do have the option to lock in your rate. The problem is that you will undoubtedly lock in at a rate with the “spread” added.

Some other factors to consider when choosing a variable vs. a fixed rate mortgage is how long you plan to stay in the home. For example, if there is a possibility of selling before the 5 year term, a variable has the advantage of less penalty when exiting the mortgage.

Robert can be contacted at 905-574-9200 Ext. 215 OR by email at mortgages@robertfloris.com. You can fill out an application online at https://application.malink.ca:8112/App/MARC/FLORISR/en-ca/1896 with absolutely no pressure and no obligation.

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