There’s more uncertainty with variable rates but the lower rates can be used to your advantage
Two years ago, this decision probably wasn’t so hard. There was virtually no inflationary pressure and variable was hands-down the winner for the majority of mortgage applicants compared to fixed.Sign up to receive the daily top stories from the Financial Post, a division of Postmedia Network Inc.By clicking on the sign up button you consent to receive the above newsletter from Postmedia Network Inc. You may unsubscribe any time by clicking on the unsubscribe link at the bottom of our emails.
This certainty is particularly helpful for buyers with high debt ratios—meaning the monthly mortgage payments eat up more of their monthly budget. While the Bank of Canada overnight rate only impacts variable rates that doesn’t mean fixed rates aren’t rising, as well. Fixed-rate mortgages are well known to be tied to the bond market.Article content
If you know you’ll be leaving the property—either selling or changing the use from a primary residence to rental property—then choosing a variable rate mortgage makes sense. At the start of June, the best five-year fixed rate was 3.69%, compared to a five-year variable rate of 2.25%. On a $700,000 mortgage, these monthly mortgage payments work out to $3,565 versus $3,049.
However, those looking to pay down mortgage debt quickly, or those in more uncertain circumstances, can capitalize on lower variable rates. Historically, variable-rate mortgages offer lower rates, which translate into lower monthly mortgage payments. Using a prepayment plan borrowers can use these lower payments to their advantage and strategically reduce their overall borrowing debt and expense.
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