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In this video I explain the rationale for choose a fixed or variable mortgage in Canada.
Hi everybody, its Rowan Smith from The Mortgage Centre. Im going to tackle the biggest question I get every day: should I get fixed, or should I take variable, and whats going to happen. I dont have a crystal ball, but I do have several years in the industry it adds up to about 10 and while I havent seen the 80s since I was a kid, I do remember what was going on at those times and Ive still dealt with many clients that have told me stories.
Heres my opinion, for what its worth, and what I think you should be looking at:
First off, which strategy is best?
It depends on your situation.
Anybody that say otherwise is not worth the license on the wall. Your unique financial position dictates whether or not a variable rate is an option for you, and it dictates whether you should be taking a fixed rate.
Picture two people in exactly the same situation with mortgage amounts and income that are the same. The thing is: one guy is a commissioned person. The second guy makes a base salary. Obviously, the person that makes a base salary, that makes that amount of money can know its going to be there. The guy with the commissions doesnt know that.
Now, if they had to stretch, or even worse, if they needed the variable rate mortgage in order to qualify for that in the first place. If they need to take variable, so they know they can afford it, well, variable rates change. Rates rise. People in that situation should absolutely not be in variable. They should be in a fixed rate so they know what their payment is going to be, because they know that their salary is going to be a set amount.
Now, on the flip side, if somebody is buying well within their means, and they have the affordability of the payment; maybe the payments make up a very small percentage of their annual income, then they can take that risk that the rates are going to rise. They can afford to take a variable rate mortgage.
I myself have taken fixed rate mortgages on 2 out of 3 that Ive had. The reason being is, my income fluctuates. I want to know at least one thing is stable, and thats the payments. So I took the fixed rate.
People that have a risk aversion to possibly paying more, or are going to lose sleep over their rate possibly increasing: these are not good candidates for a variable rate mortgage. Sometimes its best to just take fixed if that will give you peace of mind and put your mind at ease, and also provide you with two, three, five, or ten years of price stability
You look at a payment right now that is $2,200. Im just grabbing this number out of the air. Look five years from now. Look ten years from now! What is $2,200 going to mean for the house that youre in right now. Is that going to mean a lot of money? Chances are, with inflation, job increases, wage increases, promotions, moving up within your career, that payment will present a much lower percentage of your overall income in 5 years. So if you are struggling to make ends meet, and youre looking at that mortgage payment that Im presenting you with and youre saying, Rowan, I dont think I can take a 5 year, I need to take a variable, then I dont think you should buy the house. Variable rates are not a way to lower your monthly payments so you can afford it, its a way to take a risk and take a lower payment, but face the upward chance that rates could rise, and thus your payment could rise.
It doesnt take a lot of rate increase just to make that payment quite high. If todays prime rate is two and a quarter, and youre in a variable rate at prime, and youre looking at it going, yeah, but I took a three year at 3.49%, well how much is that? Its a point and a quarter that rates have to move, FROM THE LOWEST HISTORICAL POINT THAT RATES HAVE EVER BEEN.
So what should you be taking today when all you have above you is rate room to move upwards ,with virtually no downward move, again:
It depends on your unique situation. Call me up, well go over your numbers, well go over your job, your career, what youre going to do in the next few years. Are you going to have kids? Is someone going on mat leave? Are you going to be leaving the country? Are you going to travel? These are all things which play into this. If its going to be a rental property, then perhaps your want to simply minimize carrying costs. If its going to be a home, then maybe you should be looking at keeping your costs stable so your housing is a fixed cost in your budget.
I dont know what your situation is, but I can certainly help guide you and coach you in what is best for you.
Anybody that doesnt look at your personal situation and just screams, variable is best and always best. You save the most! is absolutely providing dangerous financial advice and you should be asking around.
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Fixed or Variable for Current Canadian Marketby BelloMortgage224 views
Thanks very much for you advice, i think ill be taking a fixed, the bank of england intrest rates are so low atm the only way is up. Yer a tracker or variable is cheaper right now, but its not cheaper by much and i dont think its worth the risk.
AudioGraphics 1 year ago
Hi Rowan, Wow can you video blog...I added your subscription and now my home page is all mortgage videos....I have to scroll all the way down to get all the latest Tina Turner videos...
Good job on the videos!!!
tinafanforlife73 2 years ago
I'm taking fixed. I know I would stress out constantly if I was worried that my payment or rate could rise. Variable sounds so good, but you never know what the fixed rates will be when you decide to get out!
BeautyFinish 2 years ago