Should I Go For a Fixed Rate Mortgage?

by Pam on April 24, 2010

If you are are in an open variable rate mortgage like we are right now, you may want to consider if it’s better to move into a fixed rate mortgage before the prime rate goes up.  The Bank of Canada will likely be raising interest rates soon and although prime is at an all time low right now, it won’t stay there forever.  Some major banks have already raised their fixed mortgage rates, so if you are thinking of switching, now is the time to do it before the rates go up even higher.

For my husband and I it makes the most sense for us to stay where we are as we are likely going to be selling our home within the next year or so.  For those of you who are not planning on selling your home anytime soon, you may find it more affordable within your budget to take advantage of a fixed rate.

The best way to determine whether or not you can afford to stay in an open variable mortgage is to check with your mortgage representative at your financial institution and find out what your mortgage payments would be if prime went up to 3%, 4%, 5%, 6%, etc.  If you don’t think you will be able to afford your payments when prime increases, then it’s definitely better for you to take advantage of a fixed rate mortgage ASAP.

The neat thing about having an open mortgage is that you don’t face any penalties if you decide to change your terms or even change your financial institution.  If you like the idea of staying with an open variable rate mortgage, keep your eyes and ears open, because as the prime rate goes up, you will likely be able to change your terms to get a better deal.

For example, right now we have a variable rate that is based on the prime rate.  Once prime goes up, it might be possible for us to find a financial institution offering an open variable rate of prime minus 1%.  Since our mortgage is open, we would be able to take advantage of these better terms without any penalty.  So, if you decide to stick with an open variable rate mortgage, be sure to look out for better terms and take advantage of them.

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