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Stay Variable or Go Fixed

Stay Variable?

If you’re currently in a variable rate term, you may be hoping that rates stay lower than fixed over the next few years. However, if inflation doesn’t get under control by the Bank of Canada quickly, they may raise throughout your term. This will leave the possibility open that your variable rate could be higher than the fixed one you passed up. The upside is that if your variable rate ends up higher than expected, it may still turn out cheaper over a 5-year term. So when making your decision to go with a fixed or variable, make sure the math supports both scenarios.

or Go Fixed.

Fixed rates can be a great security to make sure your payments are static over the duration of a term. But they come at a cost. With a variable rate, you’re taking on a risk. What if it turns out that the fixed rate was better? If the Bank of Canada’s plan to control inflation and spending is successful and they don’t continue to raise, then the variable may not end up surpassing the fixed any time soon. On the other hand, if it takes longer than expected to regulate spending and inflation, then rates will have to rise further. Ultimately, meaning that those with the variable rate may have to pay more than their counterparts with fixed mortgages. That being said, many savvy consumers opt for variables because even if the market rises over their term, their five year average rate could still end up much lower than those who chose fixed.

In Conclusion

When five-year variable mortgages became a popular choice in 2021/2022, it has become challenging to know if now is the time to switch to fixed. With BOCs recent rate hikes, those who chose a variable rate are wondering if now is the time to switch. Evaluating a few scenarios can help dictate if it is time to lock into a fixed rate. Consider your concern about payment increases and your need to stay on top of the markets in order to gain insight into how the BoC’s rate mandate could eventually tame inflation. If this uncertainty creates stress or anxiety, it may just be the right time to switch over to a fixed-rate.

Depending on your financial goals, you may be feeling the strain of constantly varying payments. Fixed-rates have higher penalties for breaking the term and some lenders may not even allow it. However, there isn’t a cost tied to locking in at your best fixed rate. Therefore, you’ll want to consider all your options before deciding what’s right for you.

How Mortgage Brokers Get Paid

Firstly, how do mortgage brokers get paid here at Prime Mortgage Works? We do not charge any retainer or upfront fee for our services. Actually, you don’t pay any fee directly to us for our services, ever! Yes, 100% free, no pressures advise! We are licensed professionals and are governed by provincial bodies, who have you, the clients, best interest in mind.

Who Pays the Broker?

The lender pays us, once your purchase or refinance has completed and you have received your mortgage funds. How do we choose which lender? We take into account many features of a mortgage and your specific needs and wants to advise on the BEST option for you. Underlining why it’s important to understand how mortgage brokers get paid. Lenders typically pay anywhere between .8 to 1% of the final approved mortgage amount directly to the lender. This means for you the borrower, there is no out-of-pocket expense due at closing. Rather, lenders pay the mortgage broker directly from the interest they earn from the mortgage you have secured with them.

The Broker’s Incentive

But, rest assured that it is our mission to guide you through the entire financing process. As we are not paid until after closing, this ensures that we have your best interest in mind at all times. We are always happy to answer any questions, anytime, whether you have just completed financing, or are three years into your term and considering accessing some of the equity in your home.