19 Jan

INTEREST RATES – FIXED or VARIABLE… WHAT TO DO?

Mortgage Tips

Posted by: Tracy Price

For the first time in a long time, we are now encouraging Variable Rate Mortgages (VRMs) for clients that qualify.

Fixed mortgage rates have increased by about 0.40% in the last 6 weeks. Today’s Fixed rate is hovering around 2.84% and just a few weeks ago, it was 2.44% and for a time it was 2.24%. That 5-year fixed rate is long gone.
It looks as if fixed rates will continue to climb in 2017. Why? There are political and fundamental reasons for this (more on this below). Rest assured, it’s not panic time… there are great options besides 5-year fixed rates and now is a great time to explore those options.

At the moment, Variable rates are being offered anywhere from 0.35-0.6% below Prime, which is presently 2.7%. RIGHT NOW, FOR A LIMITED TIME, WE CAN GET 2.1% VARIABLE ON HIGH RATIO MORTGAGES. CALL US FOR DETAILS!

Many lenders are “bonusing” or rather, charging premiums of about .15% on Conventional loans, making High Ratio, insurable mortgage rates cheaper (mind you the insurance premium evens things out in the end).

To qualify for a Variable, you’ll need to debt service as if you’re making payments at an interest rate of 4.64%. So, if you can afford that, we say go Variable and knock down your principle balance as much as possible.

There’s a notion of fear where VRMs are concerned. However, there are strategies you can employ so that you’re protected in the event of a Bank of Canada rate increase. We will help you navigate this.

  • Set your monthly payments at the Fixed rate payment level
  • Set up automatic savings withdrawals in the amount of the difference in payment between Variable and Fixed (or even the qualifying rate payment level) so that you’ll have a cushion in the event of a change
  • You can always lock in during your term (talk to us for details)

Now, back to why Fixed rates are on the rise. Two big reasons: Trump and Trudeau. Trump intends to stimulate the economy with spending, which means inflation. Inflation triggers rate hikes. Back in October, Trudeau’s cabinet shocked us with stricter mortgage rules without any input from experts and did so in just 2 weeks, instead of the usual 3 months. That certainly shook things up and triggered rate hikes.

Historically, as Fixed rates rise, Variable rates drop. This is a trend to be aware of and we can help you figure out how to benefit from the trends. Your best interest is our only interest. Contact us with any questions you might have. We are here to help!