Is it Time to Switch Mortgages from Variable to Fixed?

Unless you’re one of the lucky few who have the “problem” of not knowing how to spend hundreds of thousands of dollars just hanging around inside your bank account (now that’s a problem worth having!), you’re going to need a mortgage to purchase your next house. That much is clear.

But what isn’t so clear is the wide world of interest rates – in particular, whether variable is the right way to go, or whether fixed is the smarter option.

Well, to be very frank with you: I can’t tell you which one is better.

I wish I could – because that would make life simpler for you, and that’s part of my goal here with my blog! But anyone who claims to offer you an easy answer to the variable vs. fixed mortgage question is someone to be avoided, because there is no easy answer. It all depends on the rate itself, the options you have available, your current and projected economic situation, your spending and saving habits and tolerances, and even whether you plan on staying in your home for a few years, a decade, or for the long haul.

Indeed, all of these factors combine to create your unique mortgage profile, and your variable vs. fixed decision should be based on that – not on some easy answer that you find in a blog, in the newspaper, or even from a well-intentioned friend or colleague. Sure, it’s great to listen to different opinions, but your decision should be based on objective, accurate facts – not educated guesses or information that may have been accurate years ago, but not today.

However…

Even though I can’t (and won’t) offer a black-and-white opinion on whether variable is better or worse than fixed, I can offer you some wisdom by way of Sharon Essington, who has written an informative article over at Edmonton Real Estate Weekly.

In her article, Essington cautions people with variable mortgage rates to do their homework to see if it may be financially beneficial to switch over to a fixed rate. That’s because fixed rates are still at historically low levels (not as low as they were last year, but still very low), and also because, as our national economy slowly worked its way out of past recessions, it was typically variable rates that zoomed above fixed rates.

Put those two facts together, and it means that people with variable rates may find themselves paying hundreds of dollars more a month – that’s thousands more a year – than their fixed mortgage counterparts.

Essington also points out that while many variable mortgage holders will face a penalty if they make the switch for fixed, the amount may actually be worth it when the total savings are taken into consideration. So in other words: don’t let the mere idea of a penalty keep you from exploring whether this is a smart move to make. Spending a few thousand in penalties but saving tens of thousands in payments – much of it interest – is a wise financial decision to make.

My Advice: Talk to an Expert

You really have nothing to lose – and possibly thousands of dollars to gain – if you speak to an expert about your mortgage situation, and determine if switching from variable to fixed is the right thing to do at this time (before rates start to rise).

As a Realtor, I can connect you to experienced and qualified Mortgage Professionals who will give you clear, easy-to-understand answers to this rather confusing problem. You’ll be presented with various scenarios to help you objectively determine if it’s smart to switch to fixed, or whether staying with variable is the right move.

Call me at 780-709-0811. I’ll help you get the accurate information you need, which can hopefully give you the “problem” of having a few extra thousand dollars in your bank account each year – and speed you towards the best kind of mortgage there is, which of course is NO MORTGAGE AT ALL!