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
For those who are on a budget and want to for a less expensive mode of payment, it would be better to choose variable rate mortgage since it depends on the movement of the interest rates, which are usually low. Just be ready for any sudden rise of interest rates, as that may affect the payment costs.
ReplyDeleteAvril Copperfield