Time to lock in your mortgage?
Rising rates have homeowners rethinking variable rates.
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Rising rates have homeowners rethinking variable rates.
Vancouver mortgage broker Rob McLister ran the numbers to compare today’s variable rate against a five-year fixed rate based on economists’ speculations. If rates do slowly climb to 5.59% by 2018, both mortgages come out more or less equal. “People think there’s a lot more risk than there actually is,” he says. A good strategy for homeowners, he says, is to take out a variable mortgage and use the savings when compared with a fixed rate to make extra principal payments. This way you are used to paying extra should rates rise, and if they don’t, you’ll come out further ahead thanks to the lower rates and extra payments. Schulich School of Business professor Moshe Milevsky advises consumers not to obsess about the spread between variable and fixed. Instead, figure out what the security of a fixed rate costs, and whether you require that insurance in the first place. “Think of the magnitude of the spread as an insurance premium,” says Milevsky. In other words, if your job is unstable and you’re leveraged to the hilt, the security of fixed makes sense. But if there’s no pink slip in your future and plenty of slack in the budget, “go ahead and float.”85%: Ratio of consumers choosing fixed rates on 2012-2013 purchases
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