Assessing Ability to Handle Variable Rate Risk
In these uncertain financial times, it’s the mortgage question that won’t go away: go variable or lock in?
In the past month fixed rate mortgages have increased three times at most banks, while variable rates have stayed put for now. How can you measure your ability to handle higher payments? A Vancouver mortgage broker makes use of an acronym called IDEAS as a checklist. Here’s how it breaks down:
- Income: Do you have a steady income? Can you afford to pay the equivalent of a five-year fixed-rate mortgage if your variable rate increases significantly?
- Debt: How is your debt-to-income ratio?
- Equity: Do you have enough equity in your property so that you can refinance if necessary?
- Assets: Do you have at least six months of expenses saved to act as a buffer in case of emergency?
- Satisfaction with risk: Are you comfortable with rising payments of 30 per cent or more?
As always, it comes down to what you’re comfortable with. Variable or fixed, which way are you going?
