17 Jun 2018

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The argument for variable rate mortgages

When searching for a home, choosing the right mortgage is a big part of the equation. Your mortgage broker can always walk you through your options, but really understanding what’s available to you can make things a little simpler.

Conventional and High-Ratio:

  • A mortgage loan with less than 20% for a down payment, is considered high-ratio, and must be insured.
  • A conventional mortgage loan has a down payment of 20% or more.

Open and closed:

  • Open mortgages allow flexibility to pay as much as you’d like at any time (ideal if you’re expecting large amount(s) of money).
  • Closed mortgages with consistent payments are usually favourable to first-time homebuyers.

Fixed and variable:

  • Fixed interest rates will not change during the entire duration of your mortgage loan.
  • Variable interest rates will fluctuate based on the market.

Recently, the Financial Post published an article outlining why choosing a variable rate mortgage, right now, could save you money in the long run.

It’s debatable whether the central bank will act as quickly as economists anticipate, adding it’s statistically unlikely that the overnight rate will go only upward over the next five years, given historical trends going back 28 years.

“Even if rates go up first, there’s a very reasonable chance that at some point they’ll drop (again).”

As a result, borrowers could very well end up paying less total mortgage interest over the next five years by choosing a variable rather than fixed rate. [Financial Post]

With all investments and major financial decisions, there is no ‘one size fits all’ approach, so while this scenario could make sense for you, you still want to discuss your options in detail with your mortgage broker.

Even if you are not yet working with me, please feel free to contact me for a second opinion.

Tags : fixed mortgage, mortgage, mortgage alberta, mortgage broker, mortgage broker calgary, mortgage calgary, mortgage canada, variable mortgage

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