Picking a mortgage strategy that’s right for you
Picking the right mortgage can be a daunting task. Variable or Fixed? Two years, five years, or ten? Mortgage options can be confusing, but choosing the right strategy doesn’t have to be. Here are three options to suit your personal financial style.
The Saver
For those who prefer to know their money is safe and secure, a long-term fixed rate mortgage is often best. A five-year mortgage with full pre-payment privileges is a great choice. Locking in for five years and having the ability to increase or double up payments allow you to know exactly where your money is going. If you think rising rates are inevitable you may even want to look at a ten-year mortgage. At current rates a two per cent increase over the next five years would make a ten-year mortgage more cost effective than a five-year.
The Gambler
For the gamblers out there who think there is as much of a chance of rates remaining low as there is of rates rising fast, you can live on the edge a little by choosing a variable rate mortgage. Historically, variable rate mortgages have performed better than their fixed rate counterparts when they were at least half a percent lower than fixed rates at the beginning of the mortgage term, which is true as of this writing. That said, rates are still at historical lows which means they don’t have a lot of room to go down but a lot of room to go up, which may make variable rate mortgages more of a gamble than they would be normally.
The Investor
For those who keep an eye on the market and on the Bank of Canada, you may be looking for a way to time the market. If you think you have two or three years before rates start rising you can pick a two or three-year term and reassess when your mortgage comes up for renewal. This option is like choosing a variable rate mortgage only you get two or three years of security. Considering you can get a two-year fixed mortgage at 2.34% right now, a two-year is clearly a safer – and perhaps more economical bet – than a variable rate at the moment.
If you can’t decide between going fixed or variable, you can always do both. Several lenders allow you to split your mortgage between variable and fixed or different lengths of terms, which is a great option for those who can’t decide or couples who have different risk tolerances. You can always consult an Accredited Mortgage Professional (AMP) to check out all of your options. As always, you can find one at Mortgage360.
Nolan Matthias holds a Bachelor of Arts Degree in Economics, is the co-founder of Mortgage360, and the author of The Mortgaged Millionaire.
