With so many banks in Canada offering such hugely discounted rates, homeowners looking to refinance and home buyers looking for their dream home are once again faced with that age-old question: should we get a variable or fixed rate on our mortgage? Truthfully, this is a question people are going to be asking their entire lives, because there is no one perfect answer for everyone. And whether you need to lock it in or ride the interest wave will depend entirely on your own situation, and your own personality type.
The Bank of Canada just announced on Tuesday that they’d be keeping their interest rate the same 1% that it’s been for over 15 months now. This could mean for many homeowners that now is the time to lock in that rate and refinance or get a mortgage that will hold that rate for the next 4, 5, or 7 years. But, a fixed rate mortgage or those found on home equity loans is always more expensive than the variable rate you can get on a mortgage or on a secured line of credit. Unless of course, the rate rises and all of a sudden those paying prime plus 2.99% will now be paying prime plus 4.99%.
In that latter case, of course it makes sense for you to take on a fixed rate mortgage, but you have to pay the game of predictability and try to gauge where the interest rates will stand for the next several months and years. However, if interest rates were to remain the same, homeowners could also save themselves thousands (and thousands and thousands and thousands) of dollars by choosing a variable rate. Variable rates will generally be put lower than fixed rates, and even a 1% saving will means tons of savings for homeowners. That is, for those homeowners that can stomach the risk and not mind seeing the rate flip-flop every now and then.
So what’s the best choice for you? Unfortunately there’s no real way to tell. The Bank of Canada has left their interest rate the same for now; and although they didn’t officially announce it, it has been predicted that they’re going to leave it that way at least for the majority of 2012. For those that are looking to save all that money, now is the best time to go for a variable. But if those predictions turned out to be wrong, and you were stuck with a variable interest rate that you could no longer afford, it could mean disaster for your home. And if you simply can’t stand the thought of having to stay on top of the rate and its activity, especially if you can’t afford for rates to go higher, a fixed rate will most likely be best for you.
