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User Not Found | Nov 22, 2018
One of the first things potential homeowners ask is what’s the difference between a fixed and variable mortgage rate? It’s a good question and often one that poses a lot of debate. When looking at long-term trends, traditionally, variable rates have been the better deal. That being said, in recent years, fixed rates have become more popular as interest rates increase from their historic lows. However, given the current interest rate environment, the fixed vs variable rate debate is, once again, on the table.
Since July of 2017, the Bank of Canada has raised its benchmark interest rate five times bringing it up from 0.5% to 1.75%, marking the third increase this year and the highest rate since December 2008. Canadians are warned that there may be more hikes to keep a “neutral” interest rate between 2.50% and 3.50%. It’s also expected that fixed mortgage rates will continue to escalate as well.
In addition, nearly 50% of existing mortgages in Canada will have to be renewed or refinanced in 2018 which has added more to the discussion of which mortgage really is the better choice. Although the majority of current outstanding mortgages have a fixed rate, 45% of homeowners and prospective homebuyers quizzed in a recent CIBC poll said they would opt for a variable rate, or at least consider it, if they were to sign up for a new loan today.
Fixed Mortgages
Fixed rate mortgages have a history of being the most popular choice for a mortgage. Not only does it allow for more peace of mind, but given the interest rates of the past couple of years, it has also been the more popular choice. However, despite the security, a fixed mortgage can end up being the more expensive option in the end.
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Cons
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- Great for business owners or self-employed individuals who have fluctuating income
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- Depending on interest rates, fixed mortgages may end up being the more expensive option
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- Offers stability and peace of mind in terms of being able to ‘set it and forget it’
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- Your clients are paying a premium for stability
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- Your clients are protected from any rising interest rates during the term of the mortgage
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Variable Mortgages
Historically, we know that people who choose variable rate mortgages often pay less in interest over the term of their mortgage. However, they are also considered to be riskier than fixed mortgage rates due to the fact that interest rates can change quickly and without warning. This is proving to be especially true this past year given the significant increase in rates from the Bank of Canada.
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Cons
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- Historically, variable rate mortgages have proven to be less expensive over time
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- It is riskier: the rate can increase as unexpectedly as it can decrease
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- Lenders offer lower interest rates compared to fixed rate mortgages
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- Increases in rate can lead to more stress and unexpected financial burden
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Considerations for Equitable Bank
At the end of the day, there is no right or wrong choice when it comes to fixed or variable rate mortgages, but the lender your client chooses can make a difference. Switching between fixed or variable rate mortgages is also a popular option – whether it’s prime mortgage solutions, alternative customized solutions or the Equitable Bank Switch program, our products are designed to help your clients meet their financing needs.
As a challenger bank, we pride ourselves in going above and beyond to serve our customers by working closely with mortgage brokers during the application process. The best choice depends on your client’s financial situation and needs. Equitable Bank is here to help them realize their goals.