CTV Morning Live: Mortgage Minute - October 20

Fixed VS Variable

Which one are you most comfortable with.

Answering these questions will usually determine the answer.

1) Are you a 1st time home owner? Normally will have other debt (car and student loan)

2) Do you have a line of credit or multiple debt?...usually tackle this first

3) If you have a set budget (rent) then it would be smart to set mortgage payment to match

4) Any future life changes? possible / probably changes that you may expect in your future (children, job stability, retirement, etc.)

Fixed:

• Set payments, so no surprises
• Security
• Interest rates at all time lows, can probably get 2.59 or lower

Variable:

• Payments can change
• can probably get P-.50 or lower
• Benefit- can set payment for what you can afford, freedom
• If rates increase, there is no penalty to lock into a fixed rate

If the prime rate has not changed in almost 4 years, why has the variable mortgage rate changed? The variable rate that you receive on a mortgage is based on a variance of plus or minus the lender’s prime rate. Since 2009, that variance has been as low as prime minus .80% and as high as prime plus .80%. If the prime rate was 3.00%, that would be a variance from 2.20% to 3.80%, all without the rate itself changing. Why does the variance change?

A number of factors including:

• competitive pressures,
• contracting or expanding of lender risk tolerance,
• government policies,
• supply and demand of investment capital.

So fixed versus variable is a decision that you should discuss with a Mortgage professional based on your personal circumstances. One of the factors that you should include in your consideration should also be the “cost” of the “insurance premium” for a fixed term mortgage, and the value that is provided for that “premium” which as you can see, changes over time and with market conditions.

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