• What is the best mortgage product for you? Fixed or variable mortgage?

    October 2, 2022
  • mortgage risk

    What is the best mortgage product for you? Fixed or variable mortgage?

    Sean and I get asked the question more than any other question. As advisers, we do try to study the trends of mortgage rates and where they are going in the near future and have had a good track record in the past. However, we will be the first to admit, we did not see such a violent uptick in rates like we did this year.

    Working in the mortgage industry has been a very fulfilling career. But taking calls from our clients where the payment has increased from $500 to $1000 extra per month has been heart wrenching. We get to know most of our clients pretty well and it is difficult to see them struggle. I follow the Bank of Canada and certainly believed them when they stated inflation could be contained. (So much for the PhD economists who run our country.)

    In the early 80s, we experienced similar inflation issues and our prime rate skyrocketed to over 20% (ouch). The Bank of Canada does not want rates this high again; too many Canadians got hurt. This is why they have raised the rates higher to squash inflation.

    If you are in a purchase or refinance position during this time period, we will educate our clients to consider these characteristics when choosing a mortgage product:

    • Affordability
    • Level of risk
    • Peace of mind

    It seems easy. but many clients bite off more than they can chew. An affordable home will bring stability and allow you to enjoy life. An unaffordable mortgage makes you sacrifice so that stress and fear enter the household and cause friction with all relationships and affects your health. It seems simple, but be realistic.

    Every person has different levels risk tolerance levels. Many clients do not want to worry about interest rates. They like to budget and know what the payment will be. Many clients were not happy when they had higher fixed rates when the rates were at record lows. Variable rate and ARM clients are more risk takers as they generally want to pay the lowest payment.

    The variable rate history chart shows this product is the lower cost, most of the time, but not every time. Variable rate clients in the last 20 years were thrilled. This year, not so much. Unfortunately, rates from the Bank of Canada have gone so high so quick, it has been hard to stomach.

    The last area we discuss is peace of mind. It’s your mortgage and you need to be selfish to bring you happiness. Our thought process has told us, clients know themselves better than we do.

    So what is the best mortgage product for you adjustable mortgage rates or fixed? We really don’t know, but hopefully doing a self-assessment will give you your perfect answer.

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