As a consumer, given the current fixed and variable rates available, what should you do?
Since 1975 variable rate mortgages have proven to be more financially beneficial 82% of the time. That said, some experts are now saying that, given historically low rates, we may now be in that 18% period where it makes more financial sense to lock into a fixed rate mortgage. Remember, even with the higher 3.49% mortgage, the current rate is far below the historical average, which, since the 1950s, has generally remained north of 6%.
Some things you should consider when choosing between a fixed- and variable-rate mortgage:
Choose a variable-rate mortgage if:
- You think interest rates will remain at the same level or lower during the term of the mortgage
- You think there's a possibility that you may sell prior to the end of the term and wish to avoid excessive pre-payment penalties (there is, typically, a 3 month interest penalty on VRMs)
- You can afford a possible rise in rates
Choose a fixed-rate mortgage if:
- You think interest rates will rise more than the difference between your current fixed and variable rate mortgage options
- You have no plans on selling your home during the mortgage term
- You want to know what your payments will be and have peace of mind that they will not change
- Something else to consider is that some lenders will allow you to first enter a variable-rate mortgage and then switch or 'lock-in' to a fixed rate mortgage if rates begin to rise
In the end, your personal situation is unique and you should speak to a professional mortgage specialist or broker to determine what the best option is for you; I would be happy to recommend one if you don't already have someone in mind.