The Fixed or Variable Rate Decision

The Bank of Canada affects your decision to go with a fixed or variable rate mortgage.

The Bank of Canada affects your decision on whether to go with a fixed or variable rate mortgage.

Fixed rate mortgage or variable rate mortgage, which one is best for you? This is one decision that can weigh heavily on your finances. In addition, with the Bank of Canada continuously increasing the overnight rate, this decision will significantly impact your finances.

The Bank of Canada meets every six weeks to make the decision on what the benchmark interest rate should be. This decision is influenced by factors such as inflation and Canada’s economy. Since last summer, the Bank of Canada has raised the overnight rate 4 times, increasing the interest rate to 1.5%.

As of March 31, 2018, the Bankers Association stated that approximately 4,767,903 Canadians have active mortgages. In addition, according to a report by CIBC, almost half of those mortgages will need to be refinanced this year.

Things You Should Know About A Fixed and Variable Rate Mortgage

This is where the difficult decision between going with a fixed or variable rate mortgage needs to be made. One factor that should not be overlooked when making this decision is the ability to pass a stress test.

The stress test involves homeowners showing they can handle payments higher than the Bank of Canada’s five-year benchmark rate (currently 5.34 percent). Although, if a homeowner renews a mortgage with their existing lender, then they will not be subjected to a stress test.

A study conducted in 2001 by a York University finance professor Moshe Milevsky, revealed some interesting results regarding variable rate mortgages. The study showed that 9 out 10 times, Canadians are better off with a variable rate mortgage, saving approximately $22,000 over 15 years. The study was updated in 2008, increasing the chance to just over 9 out of 10 times, but lowering the amount saved to approximately $20,000.

What to Do When in Trouble

Mortgages can make up a significant amount of debt, in addition to lines of credit, car loans, and credit cards. It is important to track your payments, and the external factors that could affect the amount of the payments. If you find that you are in trouble, then you should consider seeking the advice of a professional.

We are Licensed Insolvency Trustees with the knowledge and experience in addressing the financial issues mentioned above. Our expertise can address any financial challenges you may face, including managing credit and most importantly finding a way to reduce or eliminate overwhelming debt.

If you need help, contact us by emailing or call us at 416 736 4357 (HELP). You can also book a free consultation with no obligations by filling out the contact form on our home page.

Make an appointment today for a custom-tailored solution specific to your situation. We look forward to assisting you.