Fixed or Variable Rate Mortgage? Now is the Time for Which? Have Your Advisor Prepare the Right Documents.

In a recent study conducted by the Bank of Montreal, "variable-rate mortgages have worked out to be better than fixed-rate mortgages 83 per cent of the time since 1975." That is an impressive statistic in favour of variable rates. In today's current environment, however, there are a number of key reasons to think fixed rates might be the better option for most borrowers.

Firstly, it is extremely rare to get a fixed rate mortgage historically below 5 percent. With some clients being able to get fixed rates under 3%, clear advantages are available for some individuals that historically simply have not usually been available. If you can lock-in around 3%, or even under in some cases, it is often more advisable to do so depending on your situation. To be sure, for those who want added security, 10 year fixed rates are even available in the 4% range.

Generally, the spread between fixed and variable rates is much higher. Just last month I was able to get a client a variable rate of Prime minus 0.8%, or 2.2%... this month, however, variable rates have largely risen to Prime minus 0.5%, or 2.5%. If one can obtain a fixed rate for only around 3%, the advantage of the variable rate is only half a point. Too many, half a point is simply nor worth the worry of rate fluctuations and at the end of the day, peace of mind is worth much more to people than they realise.

Most of my investment and mortgage clients are much more risk averse than they initially realize and protecting your clients from both fear and greed should be the hallmark of most advisors. So you should think of how much you can afford your mortgage payments to fluctuate should rates change, and ask your advisor to prepare you a document outlining how much your payments will be at each rate. If you feel comfortable with a fairly reasonable level of increases, then perhaps variable is for you, otherwise be content with today's low fixed rate environment.

Cheers, and be sure to comment or e-mail any of your questions.
matthew.j.w.clarke@gmail.com

Mortgage Rates to go up at Royal Bank and CIBC after Thankgiving. Other Banks to Follow. Vote with your Wallet and get your Mortgage Elsewhere.

According to the Canadian Press, mortgage rates at Canada's largest banks will be on the rise after the Thanksgiving weekend. Strong U.S. jobs numbers have caused the cost of borrowing to rise for banks in the bond market, and as usual these costs will be passed on by our banks to the Canadian consumer.

The Royal Bank is raising rates on both variable and fixed rate mortgages. At Canada's biggest bank, a five year closed rate will be 5.29%, well above rates available at mortgage brokerages and other lenders. CIBC also increased its five year rate to 5.29% for most customers. Canadians should vote with their money and choose to do business somewhere else.

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