Mortgages
Insurance
Money
| Fixed Rates | Variable Rates | |
|---|---|---|
| Definition | Allow you to lock in a rate for fixed period of time, the term of the mortgage | Fluctuates with the lenders Prime Interest Rate |
| Benefit | You know what your payments will be every month | Typically lower interest rate than with a fixed rate mortgage |
| Risk | You pay a premium for the security you get with a fixed rate in the form of higher interest rates | The fear of rising rates, which would increase your monthly payments |
| Risk Tolerance | Low | High |
| Affects | Government of Canada bond yield for the same term | The Prime rate which is ultimately affected by the Bank of Canada key overnight lending rate |
| Penalty to break contract | Lenders charge the greater of three months' interest or an "interest rate differential" (IRD) which compensates them for interest lost as a result of you breaking your mortgage – this can get expensive | Three months' interest |
| What has worked in the past? | Today’s economic environment is pretty unique, given that fixed mortgage rates are at all time lows. Many counties are still struggling to against high debt, increasing unemployment and a damaged housing market. | A study done by Dr. Moshe Milevsky, associate professor of finance, Schulich School of Business, York University,found that based on data from 1950 to 2007, the average Canadian could expect to save interest 90.1% of the time by choosing a variable-rate mortgage instead of a fixed rate. The average savings was $20,630 over 15 years per $100,000 borrowed. |
| If you have questions about which type of mortgage product is best for you, a mortgage expert can provide you with the guidance you need. | ||