03/16/2024
FIXED OR VARIABLE MORTGAGE RATE DECISIONS
Many homeowners and potential first-time homeowners are concerned about the current mortgage rate and the type of mortgage they should choose. The governor of the bank of Canada – Tiff Macklem announced last week that interest rate remains unchanged even though the inflation rate that triggered the increase in interest rate is falling.
When it comes to choosing between a fixed-rate and a variable-rate mortgage, it’s essential to weigh the pros and cons carefully. Let’s dive into the details:
Fixed-Rate Mortgage:
• Stability: With a fixed-rate mortgage, your interest rate remains constant throughout the term. This predictability provides peace of mind, as your monthly payments won’t fluctuate.
• Budgeting: If you prefer knowing the exact amount you’ll pay each month, a fixed-rate mortgage is a solid choice. It allows you to plan your finances with certainty.
• Protection: Fixed rates act as insurance against potential interest rate increases. When rates are low and not expected to fall further, locking in a fixed rate can be advantageous.
Variable-Rate Mortgage:
• Potential Savings: Historically, variable-rate mortgages tend to save money over the long term. However, this depends on market conditions and your risk tolerance.
• Fluctuations: Variable rates can change based on market fluctuations. If you’re comfortable with potential interest rate changes, a variable-rate mortgage might suit you.
• Flexibility: Variable rates allow you to take advantage of falling interest rates. You’re not locked in for the long term, which can be beneficial if rates decrease.
Now, let’s address the recent context you mentioned:
1. Bank of Canada’s Rate Hikes:
o The Bank of Canada raised interest rates ten times between March 3, 2022, and June 12, 2023, resulting in a significant increase from 0.25% to 5%.
o Homeowners with variable-rate mortgages have experienced soaring payments due to these rate hikes.
o Unfortunately, some borrowers are now facing financial stress as a result.
2. Current Trends:
● Research indicates that more people are opting for 3-year fixed-rate mortgages instead of the previously popular 5-year term.
● Some believe that the interest rate has peaked and are choosing the variable rate option to ride the potential wave of rate cuts.
Remember, your decision should align with your personal financial situation, risk tolerance, and long-term goals. Consider factors like your cash flow, ability to afford additional payments, and your outlook on future rate changes. Consult with a mortgage / finance professional to make an informed choice. 🏠📊💰
Written by:
Femi Adeniyi CPA| MTEI | REALTOR®
