17 Jan Fixed Mortgage or Variable: It’s the time to go for Fixed mortgages in 2015?

Whether you’re buying your first home, moving to a new home, or renewing an existing mortgage, one of the first decisions homebuyers and mortgage shoppers face is whether to select a fixed mortgage or variable rate mortgage. 

Choosing a fixed rate mortgage means you won’t have to worry about future interest rate fluctuations during your mortgage term where as with a variable rate mortgage, the mortgage rate will change with the prime lending rate as set by your lender. A variable rate will be quoted as Prime +/- a specified amount, such a Prime – 0.50%.

The Bank of Canada adjusts the prime rate depending on the state of the economy, as determined by the economic factors. Together, combinations of unemployment, export and manufacturing values shape the inflation rate. Generally speaking, when inflation is high, the Bank of Canada will increase the prime rate to make the act of borrowing money more expensive. Conversely, when inflation is low, the Bank of Canada will decrease the prime rate to stimulate the economy and improve the attractiveness of borrowing. In the last month or two, we have been flooded by various analyst reports about the interest rate hike in the next 12 month starting with a modest increase of .25% by Bank of Canada.

While in the past,I have recommended going with variable mortgage, and even though short-term rates are likely to remain low this year, current offers on long-term fixed mortgage rates,  interest rate hike probabality and overall economic outlook make me recommend long term fixed mortgages in at this stage.

 Current 5-Year Fixed Mortgage Rates offered by mortgage brokers with 20% down is between 2.69 to 2.89.  Fixed rates can act as a kind of buffer. Sure, you could argue that those people would probably be better off with the cheaper variable rate, but having rate stability is important for someone who can’t stomach many additional costs. Sometimes, knowing the future is worth a premium and it favors the fixed mortgage at this time.

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