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Fixed vs Variable Rate Mortgages in Canada
Variable vs Fixed in 5 Years
With todays low rates will variable still outperform fixed rate mortgages over 5 years?
Variable Mortgages Beat Fixed The Majority of The Time
When most Canadians start shopping for a mortgage one of the very first decision they need to make is deciding between fixed vs variable mortgage rates. Over the long term variable mortgage rates in Canada have proven to be the winner of the two the majority of the time. Most of this is due to the fact that fixed mortgage rates have a built in premium for lenders to protect them from rising interest rates. There are however many people who still like the security that fixed rate mortgages offer and interest in them has been increasing as many people wonder if they should try and lock in with rates at records lows and the Bank of Canada signaling that they may raise rates sooner rather than later.
Is a Fixed or Variable Rate Mortgage Right For You?
Many home owners who are living on the edge with very
little room for error may need the security that fixed mortgages can offer. Adding up
the numbers regarding your debt, assets, equity and the security of your
income can give you a good idea of just how much of a safety net you
really have. If you have a very small comfort zone you may face a
tremendous amount of emotional stress should interest rates begin to
move upwards. This could lead to many sleepless nights and days filled
with worry for some people. It's important to also know if you are the
type of person that might become emotionally tied to their financing.
When investment planners consider what type of investments are right for their clients, one of their main considerations is risk tolerance or whether their client can emotionally handle the day to day swings of the equity market. Your mortgage professional should also consider the same factors when deciding what mortgage is right for you.
If after evaluating your financial position you determine you have very little room left, you may want to forget about that lower variable rate mortgage and go with the security that fixed rates can offer. Or consider adding some options into your variable rate that will give you more security. It's important to remember that poor emotional health over an extended period of time could lead to poor physical health and there is no price or savings that is more important than your health and happiness.