Mortgage - Fixed or Variable?

[Losing With Pride]

With the Bank of Canada, once again increasing the overnight rate, does it make more sense to go with a fixed mortgage rate or variable?

 

 

[Slegr]

I would think at this moment a variable mortgage is the best bet, as it's likely to go down in the next few years. (Although it may go a tad bit higher in the short term, over the five year period I'd guess it would be less than the fixed.) That said, it does carry more risk.

[-DLC-]

While this is a good place to gauge people's opinions, I'd get professional advice when it comes to finances, etc.

 

We are all .... Canucks.

 

(I am proud to say I paid my mortgage off recently...what a great feeling that is!!!)

[dm_ranger]

The moment to go fixed was about 12 months ago I think.  Deb is right, ask advice about what the next 3-5 years are going to do.  

[Chris12345]

Should have fixed 2 hears ago.

[Chris12345]

55 minutes ago, Slegr said:

I would think at this moment a variable mortgage is the best bet, as it's likely to go down in the next few years. (Although it may go a tad bit higher in the short term, over the five year period I'd guess it would be less than the fixed.) That said, it does carry more risk.

I'd guess the opposite. What do I know?

[Warhippy]

100% ask a professional.

 

Some fixed rates have trigger points that will still raise your payments, some variables have safety nets for you and will allow you to lock in at a moments notice.

 

Do not trust an online forum of hockey fans for mortgage advice.  Shop around and do it soon

 

(fixed)

[Chris12345]

I run the math on the difference in rates and am able to see what the risk/reward is. I have even challenged the bankers on their math and found errors.

 

Let's say fixed costs you $50 more per month vs variable at the start. Ask yourself is that worth the stability? In other words do pyur sensitivity analysis.

 

We all know rates are going up so it is simply a matter of time. In other words, how many increases does it take for variable to surpass fixed? What is the likelihood of that happening?

 

My first term was variable, just made mathematical sense. I won.

 

Second was fixed. Made mathematical sense. Won again.

Edited September 10, 2022 by Chris12345

[bishopshodan]

The bigger/harder to pay the mortgage, the more I lean to fixed.

 

I  had variable mortgages for over 20 years and it worked out way better for me.

Again though, if you are maxed out on what you can afford on your payments. Fixed might be the way to go. 

 

[The Arrogant Worms]

Go to Red Flag Deals....real estate sub forum.  There is a topic about mortgage rates and different mortgage brokers post there.  Great insight and if you want they can help you.

[JM_]

rate shopping is a good idea, and getting a mortgage broker to help is free. 

 

Its a weird time right now for rates, some banks have 3-5 year fixed the same rate as variable (e.g., https://www.tangerine.ca/en/products/borrowing/tangerine-mortgage).

 

It would help for you to figure out what your risk tolerance is ahead of time, and how much it would hurt you if rates did go up. You can use a mortgage calculator and work that out for yourself https://www.tangerine.ca/en/calculators/calculators.html#mpc

 

[The_Rocket]

tough to say to be honest. we likely see another 0.25% bump maybe as soon as october. that being said, a few weeks ago there was some optimisim we would see interest rates hit an inflection point early 2023 (maybe Q2) and start to come down again. now, things are less certain with not only the 75bps bump this past week but also the BoC stating in their press release for the rate increase that they will probably increase again. that said, yield curves remain relatively flat and long term fixed rates already priced in increase to 3.5% overnight rate.

 

with Variable rates being around 5% depending on your lender, fixed rates (5 year specifically) probably only around 0.25% more.

 

if rates do go down next year, a variable will be  huge win. if they don't, could cause some problems in the long run.

 

IMO if you have the cashflow to increase your payments mid term, i would go variable as it has higher upside. however, if youre very conservative or if you are already at your maximum you feel you can afford, locking in is the better way to go and just take your lumps if rates do fall.

[Russ]

I personally like fixed, I like knowing what I will pay for atleast the next 5 years so I can budget/save/invest/put more onto the mortgage if I want.  I locked in end of May at 2.94 so I am happy right now. I could whether variable fluxuations but I don't care for that, I very much like stability. Now if it were today, variable might be the better bet, could be more short term pain but could come out ahead in the long run, or not.  No one really knows but you can go pick the brain of a couple mortgage brokers, see what they see and how it could work out in various scenarios. 

[J.I.A.H.N]

Well, my Broker almost had a stroke when I insisted on taking a 5 year fixed at 1.49% 2 years ago.............now I am sitting at a pretty good rate compared to what is out there now.

 

I guess, I am more conservative, but it worked out for me, that is for sure!

[Elias Pettersson]

The banks prefer that you float, go variable, as it allows the bank to match rates with bond yields over time.  They can't do that with fixed rates as those rates don't change while the bond yields fluctuate.  

 

Variable rates over time are usually your best bet as the prime rate always changes and when rates come down you get the benefit of that.  If you lock in for 5 years then you won't be able to take advantage of lower rates during that 5 year period.  

 

Having said that, people who are risk adverse, are on a tight budget and do not have the tolerance to see their mortgage rate fluctuate over time should probably take a fixed rate.  Also, if you can get in at a really low fixed rate before rates start climbing like @J.I.A.H.N did at 1.49% then it's a no brainer to lock in at a fixed rate for 5 years.

[Slegr]

Last year I took a penalty to get out of my mortgage (was paying at a fixed rate of about 3.6) with about a year left, and jumped on the fixed rate at 2.19 at the time. Although the penalty wasn’t too cheap, It’s paying off now.

[WeneedLumme]

9 hours ago, Elias Pettersson said:

The banks prefer that you float, go variable, as it allows the bank to match rates with bond yields over time.  They can't do that with fixed rates as those rates don't change while the bond yields fluctuate.  

You have that backwards. The banks' ideal scenario is to match up the term of the (fixed rate) mortgage with the term of the bond where they raised the money. Ie: borrow the money with a 5-year bond and then lend it out on a 5-year mortgage. That locks in their profit, minimizing their risk.

 

While the yields of existing bonds do indeed fluctuate over time, their interest rates do not; those are fixed. The way the yields fluctuate is that the bonds are traded on a free market, so their market value/price fluctuates, changing the yield provided to the buyer by the (fixed) interest rate. The cost to the bond issuer/bank however does not change when the current market value of an existing bond changes.

Edited September 11, 2022 by WeneedLumme

[JM_]

12 hours ago, J.I.A.H.N said:

Well, my Broker almost had a stroke when I insisted on taking a 5 year fixed at 1.49% 2 years ago.............now I am sitting at a pretty good rate compared to what is out there now.

 

I guess, I am more conservative, but it worked out for me, that is for sure!

we locked in as well, you could see rates were at the bottom and it was no-risk to lock down imo. 

[Chris12345]

41 minutes ago, JM_ said:

we locked in as well, you could see rates were at the bottom and it was no-risk to lock down imo. 

I'd have to run the math but locking in sounds really good.

[JM_]

20 minutes ago, Chris12345 said:

I'd have to run the math but locking in sounds really good.

it really comes down to your personal ability to absorb risk. If a 2% hike sends you into bankruptcy, maybe lock in.