August 13, 2022

Fixed or Variable rate mortgage? Which is better?

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Josh Cheema

Fixed or Variable rate mortgage? Which is better?

On the topic of interest rates, whether to go fixed or variable rate mortgage?There is no single answer. Here are key things that matter.

1. Historical Context: In the last 25 years, there have been only a few cycles where variable rates exceeded fixed interest rates (1998, 2007 and 2020). On average there was a 1% difference (red vs purple line.

2. Risk: Everyone has a different risk appetite. While a fixed-rate mortgage definitely ties in your monthly payment, something similar can be achieved through variable fixed mortgages. Once the property is occupied, the monthly mortgage on variable fixed will remain the same even if the interest rate changes (the proportion of interest vs principal will adjust accordingly)

3. Timing: The timing of the mortgage matter a lot. A fixed mortgage closed at the start of 2021 (~2.5%) will certainly beat the variable rate today. Banks’ algorithms typically have uncertainty projects built into the fixed rate but if timed right can help outperform variable rates.

Personally, I have a mix of fixed (1.7% and 2.2%, yes I know they are amazing rates) and variable rates.

I would strongly advise speaking to your mortgage specialist for further questions. At team Josh Cheema we work with top-tier mortgage brokers in Canada to bring the best rates to our clients. We can help you with the same.

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