The question that all mortgage borrowers ask us most often:
Is it better to opt for a fixed- rate mortgage or variable rate mortgage? For several years, the classic answer was always: it depends on your cash flow and your tolerance for risk, but the variable rate mortgage or short term has been more advantageous in the long term.
Example: During the period 1950 to 2000, a Canadian borrower would have paid on average $ 22 000 in interest over costs on a mortgage of $ 100 000 amortized over 15 years, opting for fixed rate mortgages for five years instead of variable rate mortgages.
The only advantage had been a greater peace of mind that payments are fixed and do not change for five years. Those who felt that this peace of mind was too dearly paid for were right.
This is not necessarily true today, some time ago, you could have negotiate a variable rate at Prime less 0.8%, it currently trades at Prime + 1%, or 3.5% at we are writing these lines, while that we can obtain a term of five years to 3.75%, the margin is very thin.
Data from the Canadian Association of Accredited Mortgage Professionals (CAAMP) show that only 27% of Canadian mortgages were at variable rates in the fall of 2008. However, this increases to 40% for mortgages contracted in the past 12 months. The popularity of variable rate mortgages has increased in recent years. It seems that this trend has accelerated since.
THE FINANCIAL CRISIS THE CHANGE
The most visible impact of the crisis is good for mortgage borrowers. The significant decline in interest rates in Canada and the fall in bond yields led to a reduction in retail rates.
The rate on a fixed-rate mortgage for five years went from 7.25% in June 2007 to 3.75% today, a historic low. Meanwhile, the variable rate cut, which requires a commitment of five years rose from 5.70% to 3.50%.
Is it better to opt for a fixed- rate mortgage or variable rate mortgage? For several years, the classic answer was always: it depends on your cash flow and your tolerance for risk, but the variable rate mortgage or short term has been more advantageous in the long term.
Example: During the period 1950 to 2000, a Canadian borrower would have paid on average $ 22 000 in interest over costs on a mortgage of $ 100 000 amortized over 15 years, opting for fixed rate mortgages for five years instead of variable rate mortgages.
The only advantage had been a greater peace of mind that payments are fixed and do not change for five years. Those who felt that this peace of mind was too dearly paid for were right.
This is not necessarily true today, some time ago, you could have negotiate a variable rate at Prime less 0.8%, it currently trades at Prime + 1%, or 3.5% at we are writing these lines, while that we can obtain a term of five years to 3.75%, the margin is very thin.
Data from the Canadian Association of Accredited Mortgage Professionals (CAAMP) show that only 27% of Canadian mortgages were at variable rates in the fall of 2008. However, this increases to 40% for mortgages contracted in the past 12 months. The popularity of variable rate mortgages has increased in recent years. It seems that this trend has accelerated since.
THE FINANCIAL CRISIS THE CHANGE
The most visible impact of the crisis is good for mortgage borrowers. The significant decline in interest rates in Canada and the fall in bond yields led to a reduction in retail rates.
The rate on a fixed-rate mortgage for five years went from 7.25% in June 2007 to 3.75% today, a historic low. Meanwhile, the variable rate cut, which requires a commitment of five years rose from 5.70% to 3.50%.
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