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Fixed vs Variable, Locked vs Flexible – Which Is Better For You?

The difference between the two types of mortgage rates has dwindled in recent years, largely due to the historically low interest levels. Fixed rates offer a conservative approach to mortgages, with each payment being the same as the last until your term is renewed. Variable rates are historically better, but have a certain amount of risk associated with them. If interest rates were to rise dramatically in a short span of time your payments would rise accordingly.

It’s an age old struggle of risk vs reward. Your income bracket and savings will likely factor into the equation as well.

When looking at a variable rate mortgage, try and decide whether or not you are comfortable with the risk. Assess your current income level as well as your future potential income. In the worst case scenario, could you weather a rapid rise in interest rates?

A good rule of thumb is to look at what your payments would be if the interest rates were two percent higher than they are currently. If you don’t think you can handle the increase, it might be a good idea to avoid this type of financing. If you are the type of person who can’t deal with any level of uncertainty, then perhaps it’s best to look at the alternative.

Most mortgage professionals are big proponents of variable rate mortgages, because statistically they outperform fixed rates. If you can, try and pay extra every week or month – whatever your frequency may be. Paying the minimum is never a good way to go about decreasing debt, and variable rate mortgages are no exception to this rule.

Fixed rates are a much more popular choice among consumers, as most people are naturally averse to risk. Five years terms are considered the standard in the Canadian mortgage market as they have been historically popular among real estate buyers. These days there isn’t a lot of difference between the two different types of rates, which is making fixed even more popular among consumers.

The other factor to look at with your mortgage purchase is how much flexibility you want with the term and the ability to put extra money down when it becomes available to you. Prepayment privileges are often available, and can vary from the ability to put a lump sum of 15 to 20 percent of the overall principle of the mortgage.

Another smart way to pay down your mortgage a little quicker is to round up your payments if possible. If your payment comes in at $1875 per month, why not round it up to $1900 if possible? Your budget won’t really notice the difference, but you will notice it when your mortgage is finished 6 months earlier in the long run.

When it comes to exploring your options, it’s always best to call and speak with a professional. Always feel free to call me anytime to discuss your financing, I can be reached on (778) 320-4346.