Rates are going up. Now what? Fixed or Variable?

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If you haven’t already heard, the real estate market continues to surprise! Last week, news broke of the Bond Yield going up, and overnight, lenders started adjusting and increasing their fixed mortgage rates. Although fixed rates went up, variable rates actually went down!

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This brings up the most common question in the mortgage industry – fixed or variable?

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There’s a few things to note for each type of rate:

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Fixed
- Predictable Monthly Payment
- Rate is locked in and won’t change for the term of your mortgage
- Penalties are significantly higher if you decide to break your mortgage before the end of your term

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Variable
- Monthly payment may vary
- Interest rate will adjust with the market (influenced by the Bank of Canada)
- Penalties are significantly cheaper if you decide to break your mortgage early

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Historically, variable rates have been known to be cheaper relative to fixed rates. With that said, you need to factor in your risk tolerance because the rate lives up to its name (it’s variable!).

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Statistics show that sixty-six percent of people who funded their mortgages last year through one lender chose to lock in to a fixed rate instead of variable. This poses an interesting question – are most people simply not comfortable going with a variable mortgage? Does the majority of people have it in their nature to be risk averse? Food for thought.

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If you’re in the market shopping for a mortgage and want a fixed rate, the best thing to do is to lock in to a fixed rate by getting pre-approved. Obtaining a pre-approval requires you to submit all your documents to a lender in advance to secure a rate for 90-120 days. This gives you enough time to search for your house, purchase it and close on your mortgage.

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Any questions? Don’t hesitate to reach out!