Fixed Versus Variable Rate: The Winner Is
People often wonder if it is better to go with a fixed rate mortgage or a variable rate mortgage.
In this post, Toronto Mortgage Planner, David Larock, dusts off his crystal ball and makes a best-guess forecast for variable rates over the next five years.
Guest Post by David Larock
It’s time to revisit the question that everyone loves to ask: Is it better to go with a fixed- or variable-rate mortgage today?
While we all crave certainty, especially when making important financial decisions, there is no one-size-fits-all answer to this question.
For starters, there are important qualitative factors to consider when choosing one option over the other. For example, if you’re more likely to lose sleep at night worrying that your mortgage payments will increase, you should go with a fixed rate. If you’ll lose sleep worrying that you’re paying too much interest, a variable rate is probably the way to go. Simply put, you can’t put a price on peace of mind.
Once these individual factors are accounted for, just about every borrower I work with asks for my view of where rates may be headed over the next several years. While my crystal ball is as murky as ever, I am happy to explain how various factors influence the future direction of our mortgage rates, and to offer my take on what these tea leaves are currently telling us. (While adding the caveat that the only thing my opinion and $2.00 will guarantee them is a hot cup of coffee!)
In today’s post I’ll try to put a stake in the ground and create a base-case estimate of where mortgage rates may be headed over the next five years (while trying to err on the conservative side.) I’ll then use that estimate to run a variable-rate simulation that will allow you to compare the relative costs of a five-year fixed-rate versus a five-year variable-rate mortgage.
David Larock is an independent full-time mortgage planner and industry insider. Visit his blog for many more interesting articles and some great mortgage advice.