One of the most important decisions you will make regarding your mortgage is whether to choose a variable rate mortgage or a fixed rate mortgage. Your decision should be based on your unique circumstances and financial situation, as well as your property buying goals and priorities. Under the right circumstances, a variable rate mortgage is a very attractive option.
What is a variable rate mortgage? A variable rate mortgage is a loan with an interest rate that varies depending on a specific benchmark. In Canada, the benchmark is usually the prime interest rate set by the Bank of Canada.
Here are some of the advantages specific to a variable rate mortgage:
- Lower Interest Rates: Historically variable rates have been more advantageous compared to fixed rates.
- Increased flexibility: Unlike a fixed rate mortgage, you have the option to pay down a variable rate mortgage faster should your income increase. If you get a salary bonus, for example, you can put more money towards your mortgage without penalty and pay off your mortgage faster.
- If you are planning on selling after a short period of time, you can take advantage of lower payout penalties.
Overall, buyers who plan to sell within 5 years, and/or aggressively pay off their mortgage, will benefit the most from a variable rate mortgage.
Is a variable rate mortgage right for you? Every buyer has unique circumstances and knowing all the right information can make a huge difference in creating a comfortable and easy home buying experience. Let’s chat to assess your situation so that you can start enjoying your new property, sooner.