One of the big questions on mortgage consumers’ minds is; whether they should choose a fixed or variable-rate product for their next mortgage. For those with a mortgage renewal or a new home purchase on the horizon, it’s a decision everyone faces.
We see a couple of ways to look at the question.
Variable-rate mortgages
Pros
- For those borrowers that aren’t risk averse, taking a variable rate product makes sense, as we are potentially at the top of the rate hike cycle, and catching rates as they begin a rate cut cycle would be the strategy.
- Also, variable-rate mortgages tend to have lower pre-payment penalties should the borrower wish to break the term early… Some definite advantages.
Cons
- The downside is that variable rates are higher than fixed rates in today’s market.
- Higher monthly payment
- Higher interest portion on each payment until rates fall.
Fixed-rate mortgages
Pros
- On the fixed rate side, it’s all about stability and predictability.
- Your rate is fixed for the entire mortgage term, as is your payment amount. Even if rates increase or decrease, you are confident your payment will continue to work within your monthly budget.
- In today’s rate market, the fixed rate 5-year mortgage rate is approximately 1% lower than the variable rate product; as always, conditions apply to the comparison.
- Also, with a lower rate comes a lower payment.
Cons
- But with that stability and predictability comes some downside. The prepayment penalties are typically more expensive. With three months interest or the Interest rate differential calculations being used, whichever is more.
- Also, if rates drop, your mortgage will not capture those decreases as you are on a fixed rate program.
With this all being said, what does Prairie West Mortgage Group recommend? Every borrower’s situation and mortgage needs are different. Making sure you get all the comparable data between the two products and making the best decision with that data that suits your individual needs is how we like to advise. So feel free to explore your options with one of our Mortgage professionals, and we’ll help you make the best decision for your new mortgage.
If you’d like to discuss your mortgage needs and which mortgage option might be right for you, don’t hesitate to contact us today at info@pwmortgage.ca or call 780-245-5568. Remember to follow us on Instagram and Facebook
