Posted On Dec 11, 2024

Choosing between a fixed-rate and variable-rate mortgage can feel like a daunting decision. But it doesn’t have to be! In this video, I break it all down for you, using a real-life example to show how variable-rate payments adjust and why fixed rates are currently below the 25-year average.

 👉 Watch the full video below to learn:

  • How variable-rate mortgage payments adjust over time
  • Why fixed rates are lower than the historical average right now
  • What economists are predicting for future rates
  • How to align your mortgage choice with your personal goals and risk tolerance

 

If you’re in Ontario, Canada, and looking for a mortgage agent who can simplify the process and help you make informed decisions, I’m here to help!

Understanding Fixed-Rate Mortgages

A fixed-rate mortgage locks in your interest rate for the term of your mortgage, typically 1–5 years. This means:

  • Your monthly payments remain consistent, providing stability and predictability.
  • You’re protected from rate increases during your term.

When is a fixed-rate mortgage a good choice?

  • If you prefer certainty in your monthly payments.
  • If you’re budgeting for major life changes, such as a new home or growing family.
  • If economists are predicting rate hikes during your mortgage term.

Understanding Variable-Rate Mortgages

A variable-rate mortgage fluctuates with the lender’s prime rate, which is influenced by the Bank of Canada’s interest rate decisions. This means:

  • Your payments could increase or decrease over time.
  • Historically, variable rates have often been lower than fixed rates over the long term.

When is a variable-rate mortgage a good choice?

  • If you have flexibility in your budget to handle potential rate increases.
  • If you’re comfortable taking on some risk for the chance to save on interest costs.
  • If economists are predicting stable or declining rates.

Why Are Fixed Rates Below the 25-Year Average?

Right now, fixed rates are lower than the historical average of the past 25 years. This is due to a mix of economic factors, including the Bank of Canada’s efforts to stabilize inflation. While fixed rates offer an attractive option, they may still cost more than variable rates if rates decline in the future.

What Economists Are Predicting:

  • Some economists expect rate cuts in late 2024 or 2025, which could lower variable rates.
  • Fixed rates may not drop as quickly, as lenders often price in longer-term risk.

How Variable Rates Adjust: A Real-Life Example

Let’s say you choose a variable-rate mortgage and the lender’s prime rate increases by 0.50%. Your monthly payment may go up slightly, but the portion of your payment allocated to interest will increase, while the principal portion decreases. This adjustment could affect your overall repayment timeline.

What This Means for You:

  • If rates rise significantly, your budget needs to accommodate higher payments.
  • If rates fall, you could save money over time.

The Key to Making the Right Choice: Your Goals and Risk Tolerance

No matter what economists predict, the best mortgage for you depends on your personal goals and risk tolerance. Ask yourself:

  • Do I want consistent payments I can rely on?
  • Am I okay with some uncertainty if it means saving on interest costs?
  • How will my choice align with my financial goals in 5, 10, or 25 years?

Let’s Make Mortgages Simple and Stress-Free

Choosing between fixed and variable rates doesn’t have to be stressful. I’m here to help you navigate the options and make an informed decision tailored to your needs.

📞 Call: 416-937-5991
📧 Email: dwayne@kavanaghmortgages.ca
🌐 Website: https://kavanaghmortgages.ca/

 

Disclaimer

This blog and video are for informational purposes only and not intended as financial advice. Always consult a licensed mortgage agent for personalized guidance. I am licensed in Ontario and am not soliciting business outside of this province.

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