recently conducted a poll indicated that most Canadians are split on whether a
variable or a fixed rate is the best strategy, even in light of the knowledge
that rates are eventually going to go up. Highlights from the survey include:
39% of respondents saying they would choose a fixed mortgage if they had to
choose between a fixed or variable mortgage today; 32% said they would go with
a fixed rate; 25% said that they could not choose between the two.
So, there is no clear-cut strategy favoured
Also the survey showed that 61% of
respondents believe interest rates will be up this time next year, while 24%
believe that rates will hold their own throughout the next year. A mere 3%
believe that rates will actually go down through the next year.
The divergent opinions on whether to go
fixed or variable underscores what we see everyday in meetings with clients -
choosing the right mortgage depends on your personal financial situation, and
there's no single answer for everyone.
There are other factors at play than just
the directional predictions for interest rates. You need to approach the fixed
versus variable decision from the inside out, starting with your personal
financial goals and working from there. Your
mortgage is a major part of your overall financial plan, and your decisions
should be based on how your mortgage fits with your long term financial goals,
not on short term rate fluctuations.
Interestingly, the type of rate that you
choose seems to have a lot to do with the stage of life that you are in,
according to the poll. 27% of
25-34 year olds (who are also mostly first time home buyers or relatively new
homeowners) would choose a variable rate mortgage; 42% among respondents 45-54
years of age, would choose a variable rate and who incidentally are more likely
to be near the end of their mortgage and have greater tolerance for rate
changes within their mortgage payment.
Homeowners can look at both a fixed and
variable strategy over the life of their mortgage. For most people, your
mortgage is a long term proposition, so your strategy should look beyond your
first term. You may choose to start with
a fixed mortgage when you buy your first home, then transition to a variable
mortgage down the road when you renew the mortgage and at a time you have
improved your financial situation and paid down some of the principal.