Fixed or variable?
We are consistently asked by clients how to figure out if they are a fixed or variable client. This is surprisingly easier to figure out than expected. Here are a few questions to ask yourself:
- If you were a VRM (variable) client, are you ok with not knowing what your monthly payment is next month? Would this affect your sleep? If so, then the stress is never worth the risk. Generally the variable rate mortgage payment fluctuates the following month when there is a change in prime.
- Can you afford a payment increase of 3-4 % higher than the current VRM? I doubt the rates will increase that high over the next few years but it is better to be safe than sorry.
- Do you qualified for the VRM with new mortgage rules? The new mortgage rules require you to qualify at the five year posted rate which is currently 5.39%. This is only if you are looking for a variable rate mortgage or fixed term of less than 5 years.
Historically speaking the variable rate mortgage is a better way to go but it is much harder to qualify for and does carry risks. Another creative option is the frozen variable payment. This locks your variable payment so essentially your payment is fixed but rate still fluctuates.
Just because you have a fixed rate mortgage doesn’t mean you are free from risk of Payment Shock. We suggest considering the Inflation Hedge Strategy to protect yourself from future raising interest rates.
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Remember to Own Your Life and have a nice day!