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#FinanceFridays: Variable vs. Fixed Rate Mortgages

"Well Joanne, it's a no-brainer. We need to lock in to a fixed rate mortgage to secure the rate." Well... no that's not necessarily the full and complete case. My response is and has consistently been, "it depends on your situation and you/your family's goals". For example, some of the questions I'd ask clients in the office are "how long do you plan to live in the home?" and "what are you financial goals and dreams?" My absolute favourite part of the job is finding out what my clients goals and dreams are (finances are deeply personal and to be given that trust to find out what my clients goals and dreams are is a privilege I never take for granted).

So to make a long story short, it depends on what your homeownership goals are. If you're planning to sell in the next present time to one year, perhaps a variable rate mortgage would be suitable for you (as long as you can manage with the rising interest rate environment affecting your monthly, bi-weekly or weekly payment from increasing due to the Bank of Canada increase in rates). Also, a variable mortgage may be suitable if you're selling in near-term because the penalty for breaking the mortgage would be the last 3 months interest of the mortgage, instead of the remaining interest for the term left of the mortgage such is the case with a fixed rate mortgage rate. So in everyday terms, a fixed rate mortgage is suited for the long term, and a variable rate mortgage is more suitable for the short term due to the penalty amounts.

Fixed mortgage rates on the other hand, may be more suitable to you and your family's financial situation if you plan on living in your home for a long period of time. It may be the case that the fixed rate of interest is better than the variable rate mortgage your bank is currently providing (which I find is more often than not the case).

Now, is an uncertain time for many (if not all) of us. My best response is to anticipate another Bank of Canada rate increase on October 26, 2022 and manage your finances accordingly. Signed, Filipina Budget Girl.


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