Fixed or Variable?

What should you do?

Due to the recent prime rate increases, fixed and variable rates are near the same. Historically fixed rates have always cost more than variable. However, some mortgage holders may be leaning more towards a fixed rate now that they are about the same.

With a variable rate you really need to be in it to ride the wave. Variable rate mortgage holders have seen a full 3% increase in their rate since March. It’s likely that we will see another variable increase yet this year, but variable rate holders will benefit over the last half of their term with lower rates.

Although fixed rates do offer the peace of mind having your rate locked in, fixed penalties frighten me. What goes up must come down and when it does, it will trigger large penalties. If the thought of increased rates is a worry to you, then locking in to a fixed rate might be ideal for you.

With these increases we are certainly seeing the squeeze. Buyers are qualifying for much less than they were prior to the hikes. Only a few months ago, a client making $95k a year with a $400 monthly loan and a small credit card would qualify for a purchase price of $420k. Today this same client would qualify for a purchase price of $370k.  This is a decrease of 12% in their borrowing power. This is frightening for mortgage holders coming up for renewal and may be coming out of a rate that was under 2% and having to renew close to 5% or higher.

We are still searching for that crystal ball to predict the future of the economy with absolute certainty. The flexibility of the variable rate is appealing but if you’re worried about a future increases the fixed rate may be the way to go. Please reach out to us if you are looking for guidance into which rate is best fit for you.