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Fixed v Variable

General William Douglas 7 Apr

How to take advantage of low variable rates without the risk

The current interest rate climate is difficult to navigate for a number of reasons, whether you are looking to purchase, re-finance or alter your current mortgage.

The reason for this is that current fixed-rate mortgages are roughly 2% higher than variable-rate mortgages. This makes variable rates very attractive in the short term, however, this does come with risk. Variable rates directly correlate to a lenders prime rate, which in turn is directly affected by the Bank of Canada’s overnight rate.

The Bank of Canada has forecast multiple interest rate increases this year to try and curb inflation. Some major institutions are predicting as many as 9 interest increased at 0.25% per increase over the next 2 years. While holding a variable rate mortgage this would be a little uncomfortable as your interest rate increases.

There is however a solution to this conundrum. At least one lender offers a “protected variable” product. This product allows you to take advantage of the current low variable interest rates but there is a ceiling on how far the lender will allow your variable rate to rise.

This gives you the best of both, lower interest rates while they are around without the risk.

Contact me today if you have any questions.

 

 

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