To Fix Or Go Variable. That Is The Question.

When it comes to locking in a fixed or a variable interest rate, it could feel like deciding to get on a rollercoaster or stay on the safe sideline.
While a fixed rate provides security and keeps you safely locked in for a five-year period, it is usually set at a higher rate than the variable. 
It also means that should interest rates go down, you could be paying a much higher rate than your adventurous 'variable rate' buddies.

What Are Your Goals?
It really comes down to what your financial goals are for the property you carry a mortgage for. Consider when you first bought the property and what your long or short-term goals were. 

Reasons You Might Consider A Variable Rate
Is your property your primary residence or is it a long-term investment property to bring in rental income or an investment for your future retirement?

  • Qualifications
Qualifying for the 'stress test' is lower for a variable in comparison to a fixed rate where you must qualify 2% higher than the current prime rate.

  • Property Short-Term
If you plan on flipping a property and selling within 5 years, you'll want to avoid a fixed rate to ensure that you are not charged an IRD penalty- Interest Rate Differential penalty. If for whatever reason, you need to sell before your 5 year term and break the fixed-term mortgage, you will possibly have to pay a fee upward of $20,000.

  • Easy to Make a Switch to a Fixed Rate
With a variable rate, if you decide to switch to a fixed rate, there is no financial penalty to change if you stay with the same lender, according to BNN Bloomberg

While locking in a fixed rate can make you feel a little more secure, you need to remember that even though the prime rate has been rising, variable rates are still cheaper, and the chances of variable rates declining again are possible.

For the past 25 years, the variable rate has been in decline.  One of the advantages of having a variable rate is that it gives you the opportunity to pay down your principal if rates go down instead of being locked into a higher fixed rate.

On the other hand, inflation is still very high, and although it is beginning to slow, according to Reuters, there are more possible interest rate hikes on the horizon.

Before taking the leap, the best thing to do is

get professional advice.

Talk to our In-House Mortgage team about your next step. 

We are always ready to help!

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