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This is the question that I get most asked: Should I go with a fixed or variable mortgage?

In the past, when the spread between the variable and fixed rates were way farther apart, it was an easy answer, as long as the client didn’t mind their monthly payments fluctuating. I would always answer: Go with the variable.

This was because, historically, the variable has saved homeowners money more than 85% of the time. However, times have changed and the spread between the variable and fixed rates has become a lot closer, since banks are not discounting the variable rates as much,  the best variable now is prime – 0.35%, that equates to 2.65%. The best fixed rate right now for a five year term is 3.29%. The spreads have come closer primarily because banks are losing money on the variable side and are trying to direct borrowers to the fixed side with lower spreads.

So back to the question: Should I go with the variable or fixed mortgage?

With the fixed rate mortgage, homeowners lock in their mortgage for a period of time, the most popular being the five year fixed-rate mortgage. Since rates can arguably only go up from the rates we are at, it seems like a logical decision to go with a fixed mortgage.

The difference between today’s variable rate, which is 2.65% and the four year fixed, 2.99%, is a difference of 34 basis points or just over one rate hike.

This is a small difference to have the security knowing that you won’t have to pay more if rates were to rise.

Moshe Milevsky, professor at York University and an author of mortgage studies says that the savings that one may get from variable rates in the future will be a lot lower then what was once enjoyed.

However, a person’s circumstances should dictate if they should go with a fixed or variable mortgage. If a person can take on the fluctuation of monthly payments, then the variable is ok for them.

One must remember that a mortgage is only one piece of a person’s total financial plan.

However, if you are still struggling to decide which mortgage is right for you, these are the top considerations to think about:

1.     Your Financials

Since variable – rate mortgages take on more risk, a person needs to know whether they are able to take on a fluctuating variable – rate mortgage. A person’s income should be stable, their debt should be low, a person’s sensitivity to risk should be low, and any assets a person has, are able to be turned into cash if cash flow tightens.

2.     Spreads

This is the difference between the variable – rate mortgage and the fixed rate mortgage. When this difference tightens, the variable losses some advantage. When the spread is less than one percentage point and the economy is at the bottom of an economic cycle, like we are now, the fixed has a higher probability of outperforming. Today’s spread between a five year fixed and a variable mortgage is half a percentage point. Based on this, a fixed is likely to outperform.

3.     Breaking Your Mortgage Early

One bank study pegged the duration of a five year mortgage is 3.3 years. This is because people break their five year mortgage early to refinance, sell, divorce, or just change to a mortgage with a better rate. Penalties on variables tend to be less, only three months interest, compared to breaking a fixed rate mortgage. Penalties for breaking the fixed rate can be a lot more expensive because of lenders interest rate differential penalties. If there is a chance you will break your mortgage, a variable may cost you less.

4.     Flexibility

Variables give you the option of changing your mind and locking into a fixed rate option. However, a lender’s rate to convert is about a fifth to a half a percentage point above its best fixed rate.

5.     Alternatives

The five year fixed and the variable mortgages are not the only options; look at shorter fixed terms. Today, you can find a two year fixed rate at 2.49%, where most variables are at 2.7% - 2.90%. You can diversify risk by using a hybrid mortgage. This is part fixed and part variable.

6.     Knowing Your Rate

There is comfort to know what your monthly payments will be from month to month. Variable rate borrowers don’t have this comfort and may have to tolerate some anxiety if rates start to rise.

Read

Please visit our Open House at 6 MARTHA'S HAVEN MANOR NE in CALGARY.
Open House on Saturday, October 29, 2011 2:00 pm Cute 828 sq ft bi-level, 3 bedrooms, 2 full bathrooms, fully finished home. Great as a started home!
OPEN HOUSE ON SEPTEMBER 18 FROM 2 - 4 PM! COME AND SEE US! ... This cozy home is located in a nice Martha's haven community and utilizes available interior space extremely well. 3 bedrooms + 2 full bathrooms and a fully finished basement! This bi-level is a great starter home for young family. Enjoy your kitchen, dining room with sliding door to the good size of the deck, family room and 2 bedrooms on the main floor. The basement is fully finished with bedroom, full bath, large family room and storage space. The laundry room is also placed on the lower floor. Quiet community. Home is conveniently located only 2 minutes' walk to the bus stations number 60 & 61, and short walk to the future LRT station. Come to see us!
Read

I have listed a new property at 816 45 ST SW in CALGARY.
Fabulous location close to schools, parks and public transportation. This bungalow features hardwood floors, large new kitchen, 3 bedrooms upstairs, fully finished basement (illegal) suite with separate entrance, large family room, 2 more bedrooms, full bath and kitchen. Oversized heated double garage, fully landscaped, and very well taken care off. Great property for an investor! Basement suite is rented out for $900/mth. Great mortgage helper.
Read
Categories:   | Abbeydale, Calgary Real Estate | Airdrie, Airdrie Real Estate | Alberta Housing Market | alberta housing market forecast 2012 | Alberta Housing Market, housing projections, cmhc | Alberta Housing Market, housing projections, cmhc, Calgary housing market, chestermere homes for sale | Alberta Land Tax | Android | April Market Update | April Market Updates for Calgary | Arbour Lake, Calgary Real Estate | Bowness, Calgary Real Estate | Bragg Creek, Bragg Creek Real Estate | Bridlewood, Calgary Real Estate | Calgary cash incentives | Calgary Economic Recovery | calgary economy | Calgary Economy, Calgary Housing Market, Calgary Real Estate, Chestermere Real Estate | Calgary Econonomy, Calgary Housing Market, Calgary Real Estate, Chestermere Real Estate | Calgary Grants | Calgary home market | Calgary Home Prices | Calgary home sales | Calgary Homes For Sale | Calgary Housing | Calgary Housing Market | Calgary Housing Market Outlook 2012 | calgary housing market statistics | Calgary Housing Market Update | Calgary Housing Stats | Calgary Housing Trend | Calgary Market Forecast | Calgary Market Outlook 2012 | Calgary Market Update | Calgary Open House | Calgary Properties | Calgary Real Estate | Calgary Real Estate Forecast | Calgary Real Estate Market | Calgary Real Estate Stats | Calgary Relocation | Canada Housing Market | Canada Mortgage Update | Cardston, Cardston Real Estate | Carstairs, Carstairs Real Estate | Chaparral, Calgary Real Estate | Chestermere | Chestermere home for sale | Chestermere Homes | Chestermere Housing Market | Chestermere Open House | Chestermere Real Estate | Chestermere Real Estate Stats | Chestermere Realtor | Chestermere, Chestermere Real Estate | Citadel, Calgary Real Estate | Cityscape, Calgary Real Estate | CMA, Market Analysis, Selling Price, Fair Market Value, Home Value, home price | CMHC | Connaught | Connaught, Calgary Real Estate | Country Hills | Country Hills, Calgary Real Estate | Coventry Hills, Calgary Real Estate | Dalhousie, Calgary Real Estate | Deer Ridge, Calgary Real Estate | Deer Run, Calgary Real Estate | economic recovery | Economy | Evanston, Calgary Real Estate | Executive Home for Sale | Falconridge, Calgary Real Estate | Finance | First Time Home Buyers | foreclosure | Garrison Green | Garrison Green, Calgary Real Estate | Harvest Hills, Calgary Real Estate | Hawkwood, Calgary Real Estate | Hillhurst, Calgary Real Estate | Housing Trends | Inglewood, Calgary Real Estate | IPhone | January 2013 Market Update | Lake Bonavista, Calgary Real Estate | Lakeside Home For Sale | Langdon | Langdon, Langdon Real Estate | Lyalta, Lyalta Real Estate | Mahogany, Calgary Real Estate | Market Trends | Market Update | Market Value | Marlborough Park, Calgary Real Estate | Martindale, Calgary Real Estate | Mayland Heights, Calgary Real Estate | McKenzie Towne, Calgary Real Estate | MLS QR Code | MLS Search | MLS Search, Personal Real Estate Office, Real Estate, home search, compare homes, search for homes | Monterey Park, Calgary Real Estate | Mortgage | Mortgage Fraud | Mortgage Rates | Mortgage Registration | Mortgages | New Listing | Okotoks, Foothills Real Estate | Okotoks, Okotoks Real Estate | Open House | Pineridge, Calgary Real Estate | Pricing Your Home For Sale | QR Code | Real Estate | Real Estate App | Real Estate Forecast | Real Estate GPS QR Code | Real Estate Integrity | Real Estate QR Code | Real Estate, Chestermere Real Estate, Calgary, Buy, Sell, home | Recession | Redcarpet_Mountview, Calgary Real Estate | Rent vs Buy | Rental Property | Rental Property, Calgary Rental, First Time Home Buyers | Rosscarrock | Rosscarrock, Calgary Real Estate | Rural Rocky View MD, Rural Rocky View County Real Estate | Rural Rocky View MD, Rural Rocky View MD Real Estate | Rural Rocky View MD, Rural Rockyview County Real Estate | Rural Wheatland County, Rural Wheatland County Real Estate | Sage Hill, Calgary Real Estate | Secondary Suite | Sell Your Home | Selling Your Home | Shawnessy, Calgary Real Estate | Somerset | South Calgary, Calgary Real Estate | Southview, Calgary Real Estate | Spruce Cliff, Calgary Real Estate | Strathmore | Strathmore, Strathmore Real Estate | Suite | Sundance, Calgary Real Estate | Temple, Calgary Real Estate | Turtle Lake Real Estate | Tuscany, Calgary Real Estate | Victoria Park, Calgary Real Estate | Whitehorn | Whitehorn, Calgary Real Estate | Woodbine, Calgary Real Estate
RSS

This is the question that I get most asked: Should I go with a fixed or variable mortgage?

In the past, when the spread between the variable and fixed rates were way farther apart, it was an easy answer, as long as the client didn’t mind their monthly payments fluctuating. I would always answer: Go with the variable.

This was because, historically, the variable has saved homeowners money more than 85% of the time. However, times have changed and the spread between the variable and fixed rates has become a lot closer, since banks are not discounting the variable rates as much,  the best variable now is prime – 0.35%, that equates to 2.65%. The best fixed rate right now for a five year term is 3.29%. The spreads have come closer primarily because banks are losing money on the variable side and are trying to direct borrowers to the fixed side with lower spreads.

So back to the question: Should I go with the variable or fixed mortgage?

With the fixed rate mortgage, homeowners lock in their mortgage for a period of time, the most popular being the five year fixed-rate mortgage. Since rates can arguably only go up from the rates we are at, it seems like a logical decision to go with a fixed mortgage.

The difference between today’s variable rate, which is 2.65% and the four year fixed, 2.99%, is a difference of 34 basis points or just over one rate hike.

This is a small difference to have the security knowing that you won’t have to pay more if rates were to rise.

Moshe Milevsky, professor at York University and an author of mortgage studies says that the savings that one may get from variable rates in the future will be a lot lower then what was once enjoyed.

However, a person’s circumstances should dictate if they should go with a fixed or variable mortgage. If a person can take on the fluctuation of monthly payments, then the variable is ok for them.

One must remember that a mortgage is only one piece of a person’s total financial plan.

However, if you are still struggling to decide which mortgage is right for you, these are the top considerations to think about:

1.     Your Financials

Since variable – rate mortgages take on more risk, a person needs to know whether they are able to take on a fluctuating variable – rate mortgage. A person’s income should be stable, their debt should be low, a person’s sensitivity to risk should be low, and any assets a person has, are able to be turned into cash if cash flow tightens.

2.     Spreads

This is the difference between the variable – rate mortgage and the fixed rate mortgage. When this difference tightens, the variable losses some advantage. When the spread is less than one percentage point and the economy is at the bottom of an economic cycle, like we are now, the fixed has a higher probability of outperforming. Today’s spread between a five year fixed and a variable mortgage is half a percentage point. Based on this, a fixed is likely to outperform.

3.     Breaking Your Mortgage Early

One bank study pegged the duration of a five year mortgage is 3.3 years. This is because people break their five year mortgage early to refinance, sell, divorce, or just change to a mortgage with a better rate. Penalties on variables tend to be less, only three months interest, compared to breaking a fixed rate mortgage. Penalties for breaking the fixed rate can be a lot more expensive because of lenders interest rate differential penalties. If there is a chance you will break your mortgage, a variable may cost you less.

4.     Flexibility

Variables give you the option of changing your mind and locking into a fixed rate option. However, a lender’s rate to convert is about a fifth to a half a percentage point above its best fixed rate.

5.     Alternatives

The five year fixed and the variable mortgages are not the only options; look at shorter fixed terms. Today, you can find a two year fixed rate at 2.49%, where most variables are at 2.7% - 2.90%. You can diversify risk by using a hybrid mortgage. This is part fixed and part variable.

6.     Knowing Your Rate

There is comfort to know what your monthly payments will be from month to month. Variable rate borrowers don’t have this comfort and may have to tolerate some anxiety if rates start to rise.

Read

Please visit our Open House at 6 MARTHA'S HAVEN MANOR NE in CALGARY.
Open House on Saturday, October 29, 2011 2:00 pm Cute 828 sq ft bi-level, 3 bedrooms, 2 full bathrooms, fully finished home. Great as a started home!
OPEN HOUSE ON SEPTEMBER 18 FROM 2 - 4 PM! COME AND SEE US! ... This cozy home is located in a nice Martha's haven community and utilizes available interior space extremely well. 3 bedrooms + 2 full bathrooms and a fully finished basement! This bi-level is a great starter home for young family. Enjoy your kitchen, dining room with sliding door to the good size of the deck, family room and 2 bedrooms on the main floor. The basement is fully finished with bedroom, full bath, large family room and storage space. The laundry room is also placed on the lower floor. Quiet community. Home is conveniently located only 2 minutes' walk to the bus stations number 60 & 61, and short walk to the future LRT station. Come to see us!
Read

I have listed a new property at 816 45 ST SW in CALGARY.
Fabulous location close to schools, parks and public transportation. This bungalow features hardwood floors, large new kitchen, 3 bedrooms upstairs, fully finished basement (illegal) suite with separate entrance, large family room, 2 more bedrooms, full bath and kitchen. Oversized heated double garage, fully landscaped, and very well taken care off. Great property for an investor! Basement suite is rented out for $900/mth. Great mortgage helper.
Read
Categories:   | Abbeydale, Calgary Real Estate | Airdrie, Airdrie Real Estate | Alberta Housing Market | alberta housing market forecast 2012 | Alberta Housing Market, housing projections, cmhc | Alberta Housing Market, housing projections, cmhc, Calgary housing market, chestermere homes for sale | Alberta Land Tax | Android | April Market Update | April Market Updates for Calgary | Arbour Lake, Calgary Real Estate | Bowness, Calgary Real Estate | Bragg Creek, Bragg Creek Real Estate | Bridlewood, Calgary Real Estate | Calgary cash incentives | Calgary Economic Recovery | calgary economy | Calgary Economy, Calgary Housing Market, Calgary Real Estate, Chestermere Real Estate | Calgary Econonomy, Calgary Housing Market, Calgary Real Estate, Chestermere Real Estate | Calgary Grants | Calgary home market | Calgary Home Prices | Calgary home sales | Calgary Homes For Sale | Calgary Housing | Calgary Housing Market | Calgary Housing Market Outlook 2012 | calgary housing market statistics | Calgary Housing Market Update | Calgary Housing Stats | Calgary Housing Trend | Calgary Market Forecast | Calgary Market Outlook 2012 | Calgary Market Update | Calgary Open House | Calgary Properties | Calgary Real Estate | Calgary Real Estate Forecast | Calgary Real Estate Market | Calgary Real Estate Stats | Calgary Relocation | Canada Housing Market | Canada Mortgage Update | Cardston, Cardston Real Estate | Carstairs, Carstairs Real Estate | Chaparral, Calgary Real Estate | Chestermere | Chestermere home for sale | Chestermere Homes | Chestermere Housing Market | Chestermere Open House | Chestermere Real Estate | Chestermere Real Estate Stats | Chestermere Realtor | Chestermere, Chestermere Real Estate | Citadel, Calgary Real Estate | Cityscape, Calgary Real Estate | CMA, Market Analysis, Selling Price, Fair Market Value, Home Value, home price | CMHC | Connaught | Connaught, Calgary Real Estate | Country Hills | Country Hills, Calgary Real Estate | Coventry Hills, Calgary Real Estate | Dalhousie, Calgary Real Estate | Deer Ridge, Calgary Real Estate | Deer Run, Calgary Real Estate | economic recovery | Economy | Evanston, Calgary Real Estate | Executive Home for Sale | Falconridge, Calgary Real Estate | Finance | First Time Home Buyers | foreclosure | Garrison Green | Garrison Green, Calgary Real Estate | Harvest Hills, Calgary Real Estate | Hawkwood, Calgary Real Estate | Hillhurst, Calgary Real Estate | Housing Trends | Inglewood, Calgary Real Estate | IPhone | January 2013 Market Update | Lake Bonavista, Calgary Real Estate | Lakeside Home For Sale | Langdon | Langdon, Langdon Real Estate | Lyalta, Lyalta Real Estate | Mahogany, Calgary Real Estate | Market Trends | Market Update | Market Value | Marlborough Park, Calgary Real Estate | Martindale, Calgary Real Estate | Mayland Heights, Calgary Real Estate | McKenzie Towne, Calgary Real Estate | MLS QR Code | MLS Search | MLS Search, Personal Real Estate Office, Real Estate, home search, compare homes, search for homes | Monterey Park, Calgary Real Estate | Mortgage | Mortgage Fraud | Mortgage Rates | Mortgage Registration | Mortgages | New Listing | Okotoks, Foothills Real Estate | Okotoks, Okotoks Real Estate | Open House | Pineridge, Calgary Real Estate | Pricing Your Home For Sale | QR Code | Real Estate | Real Estate App | Real Estate Forecast | Real Estate GPS QR Code | Real Estate Integrity | Real Estate QR Code | Real Estate, Chestermere Real Estate, Calgary, Buy, Sell, home | Recession | Redcarpet_Mountview, Calgary Real Estate | Rent vs Buy | Rental Property | Rental Property, Calgary Rental, First Time Home Buyers | Rosscarrock | Rosscarrock, Calgary Real Estate | Rural Rocky View MD, Rural Rocky View County Real Estate | Rural Rocky View MD, Rural Rocky View MD Real Estate | Rural Rocky View MD, Rural Rockyview County Real Estate | Rural Wheatland County, Rural Wheatland County Real Estate | Sage Hill, Calgary Real Estate | Secondary Suite | Sell Your Home | Selling Your Home | Shawnessy, Calgary Real Estate | Somerset | South Calgary, Calgary Real Estate | Southview, Calgary Real Estate | Spruce Cliff, Calgary Real Estate | Strathmore | Strathmore, Strathmore Real Estate | Suite | Sundance, Calgary Real Estate | Temple, Calgary Real Estate | Turtle Lake Real Estate | Tuscany, Calgary Real Estate | Victoria Park, Calgary Real Estate | Whitehorn | Whitehorn, Calgary Real Estate | Woodbine, Calgary Real Estate
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