Variable rate or fixed rate mortgage?

Variable rate or fixed rate mortgage?

The Investors Group mortgage rate caused a stir when the financial services company offered a rock bottom variable mortgage rate of 1.99 per cent on a three-year term.

The bold move caught the eye of multiple media outlets and spurred discussion as to whether the feds would step in once again to temper the housing market. According to BNN, it’s unlikely that the feds will step in, especially since homebuyers looking to sign up for a mortgage at that rate will need to still be able to afford a five-year, fixed rate mortgage. Former finance minister Jim Flaherty set up the rule to help consumers avoid taking on more mortgage debt than they can afford.

But with our current interest rate environment, which is the better option: a fixed rate or variable rate mortgage?

Variable rate mortgages typically offer more competitive interest rates, but the catch is that it fluctuates according to any changes to a bank’s prime interest rate, which is influenced by the overnight rate. For the past few years, it has sat at an all-time low of one per cent since September 2010. This was a tactic used by the Bank of Canada to help stimulate the economy in response to the recession. Recently Bank of Canada Governor Stephen Poloz expects that interest rates will remain low for years to come, which means that there would be savings in store for homebuyers. But, if there’s unexpected interest rate increase, then their mortgage costs will also go up.

Another factor to note is that homeowners who have signed on for a variable rate mortgage can convert it to a fixed rate mortgage later on.

Fixed rate mortgages can be a good option for those looking for stability in their housing payments. For whatever term they sign on for, their mortgage payments will not change, no matter how much interest rates increase or decrease. This can help a homeowner stick closely to their budgets and avoid any unexpected jump in costs.

But it looks like Canadians are shifting their attitudes away from variable mortgage rates with 82 per cent of homebuyers in 2013 locked in their interest rates for a fixed term in 2013, according to the Canadian Association of Accredited Mortgage Professionals. Also, 67 per cent of all homeowners have a fixed rate mortgage, but many could still be swayed by the lower interest rates.

Whatever route you decide to go with, it’s important that you’ve properly budgeted for your closing costs, along with the cost of your home. Also, while it may be a seller’s market out there this spring and summer, homebuyers need to avoid being swayed by their emotions if they become involved in a bidding war.

Real estate is a popular investment for many families and Rebate4U can help you claim some money back from the CRA with an HST rebate, depending on whether you qualify. Our priority is to provide our clients with the most professional and quality service in obtaining rebates for their new and renovated homes. We are proud to offer our clients the most personal and attentive service, and we make sure that all of our clients are 100% satisfied.

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