In my opinion the goal is to pay the least amount of interest, but people always stress out about rates going up.
So, why not:
Go variable, and get a lower rate , but
Since you were willing to go fixed at a higher payment take the difference and set up a separate savings account and stash the money there. Every 6 months or so, make an extra mortgage payment.
This is what I do. I went 1 year fixed, but put aside as if I was 5 year fixed.
I know I told you to go variable, while I went fixed, but 1 year fixed had a better rate than 5 year variable.
In the end the lowest rate available is what I do.
i have chosen to go one year variable...i think the discount of the variable from prime is going to increase as the economy gets on a firmer footing and i'd like to take advantage. As a matter of principle, i will always go variable no matter what the interest rates are orwhere people think prime is heading.
It's a matter of how well you can sleep at night and how much surplus you have in your cash flow if rates go up. Variable rate mortgages gained popularity when interest rates went into free-fall. Now a lot of people are either too young or too short-memoried to remember when mortgage rates went to 19%. I don't think anyone is expecting anything that bad in the foreseeable future, but everyone is predicting rate increases of some kind soon. My advice would be lock into a fixed rate mortgage that has some pre-payment privileges.
It seems like over the last decade or so that short term mortgages have done much better than 5 year fixed.
That said, we went with a 5 year fixed a couple of years ago because things were a bit tight so we would have had a hard time dealing with a big increase in interest rate. Our decision was based on reducing risk alone.
I suspect our next renewal will be for a variable since we are getting near the end....
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