Choose Variable Rate Mortgage to Save Money

Posted: October 27, 2011 in General Information, Mortgages
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Variable mortgages are historically cheaper and in the last 50 years they have averaged one percent cheaper than fixed rates. You’d have to go back to 1980 to remember when the fixed rates held advantage over variable rates.

The variable rates are near historical lows and the Bank of Canada has indicated that it plans to keep it that way in the face of the uncertainty over the European and North American economies. The U.S. Federal Reserve has promised to keep the interest rates low through 2013 and Canadian rates need to remain close to American ones. There’s even a buzz amongst mortgage lenders that the interest rates could fall further.

With a fixed mortgage, the penalty to break your mortgage, is the greater of three months’ interest or Interest Rate Differential or IRD. The variable rate penalties are typically lower and only subject to the three months’ interest penalty.

With a variable mortgage term you have the ability to lock all or part of your mortgage at a fixed rate and without penalties or costs at anytime you choose to do so.

With a variable mortgage the savings are immediate because of the spread between fixed and variable rates. Even if the interest rates were to rise, they would have to be quite big to wipe out the savings reaped at the beginning of the mortgage. Understandably the variable rates are riskier but it’s an option that pays off. If that seems like too big of a gamble you could go half and half of your mortgage that way you’d only be more than half wrong.

If you are looking to renew or get a new mortgage don’t hesitate to give me a call. As a Mortgage Broker I deal with over 40 lenders to get you the best rate possible.



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