Another Argument to Fixed Versus Variable
“For Residential Mortgage Interest Rates, Here’s Another Potential Plus To The Variable Side Of The Argument”
I don’t have the exact original source for the following statistic I’m going to lay on you, but the source that provided it to me is pretty reliable, so I still think its work putting forward.
Anyway, here it is.
73% of Canadians will not finish a 5 year Term
Whether if this is true for the whole population or not is basically irrelevant. The question is, does this relate to you?
If so, then it’s something that you need to build into your decision making process when looking at fixed or variable interest rates on your mortgage.
The reality of the statistic is that if you do fall into this category, then there’s a good chance that’s you’re paying significantly more in interest for your residential home mortgage.
The reason you’re more likely to be paying more over a period of time is 1) you are not going to the end of the mortgage term and thus will be paying some amount of prepayment penalty (this can be considerable if the interest rates in general have gone up at the time of prepayment compared to when the mortgage was issued), and 2) the variable interest rate has a high probability of averaging out at a lower rate than the 5 year rate over a period of time.
This is not to say you shouldn’t be signing up for a 5 year rate, because there are excellent rates available in this range. But if you are someone who is required to move a lot due to your job, or have a growing family that is going to need a larger home in the short term, then you may want to stick to the variable interest rate options.
The key here is that, on average, based on this statistic and the track record of interest rate trends in Canada over the last 10 years, there is greater opportunity to save money on your mortgage through a variable interest rate unless you know you are going to stay with a 5 year fixed rate to the end of the 5 year period. Then the decision making process may be different.
If you have any questions or concerns about variable versus fixed interest rates, please give me a call and I will be happy to make sure all your questions get answered.
About the Author Joe Walsh
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel