4 January 2011

The cons:
If the rates go up during your mortgage term, your interest rate can increase as well. It means you’ll pay more than in case of a fixed rate mortgage. That’s why you’ll need more time to pay it off.

Another risk may concern your mortgage payments. They can also change, depending on the lender and mortgage product. That’s why it’s necessary to see what changes you can afford. If you feel that you can’t afford such a risk, maybe it’s better to get a fixed mortgage. However, it’s always a good idea to consult a mortgage professional in order to see what’s best for you.

The advantages:
When you sign a contract, your variable rate can be much lower than the fixed one. But it’s quite difficult to predict any rate market changes which will influence your mortgage in the future.  During the period of 2000-2009, for instance, the BoC rate varied from 0.5% to 6.00%.

Variable mortgage payments
Of course, all payments changes depend on the lender and mortgage product, so there are different scenarios:
•    Your payment changes depending on the rates tendencies.
•    Your payment remains unchanged when the rates go down, but increases when the rates go up.
•    Your payment changes only if the rates rise to a certain “trigger” point (it should be written in your mortgage agreement).

Despite the fact we are expecting prime to go up later this year – variable/adjustable mortgages are still winning over fixed because of good discount and muted recovery from great recession. For your particular mortgage scenario and advise please consult professional mortgage broker.