Integrated Mortgage Planners
✕
  • Contact
  • About
  • Media
  • Privacy Policy
  • Blog
  • Rates
  • Mortgage Central
    First Time Home Buyer
    First-time Home Buyers
    Borrower Specific Advice
    Borrower Specific Advice
    Fixed or Variable? The Question People Love to Ask
    Mortgage Calculators
    Fixed or Variable? The Question People Love to Ask
    Mortgage Rate Updates
    Fixed or Variable? The Question People Love to Ask
    Borrower Beware
    Fixed or Variable? The Question People Love to Ask
    Product Commentary
  • About
  • Apply
Fixed or Variable? The Question People Love to Ask
(416) 304 0100
Fixed or Variable? The Question People Love to Ask
Call us
Fixed or Variable? The Question People Love to Ask
Fixed or Variable? The Question People Love to Ask
✕
  • Blog
  • Rates
  • Mortgage Central
  • About
  • Apply
  • Blog
  • Rates
  • Mortgage Central
    First Time Home Buyer
    First-time Home Buyers
    Borrower Specific Advice
    Borrower Specific Advice
    Fixed or Variable? The Question People Love to Ask
    Mortgage Calculators
    Fixed or Variable? The Question People Love to Ask
    Mortgage Rate Updates
    Fixed or Variable? The Question People Love to Ask
    Borrower Beware
    Fixed or Variable? The Question People Love to Ask
    Product Commentary
  • About
  • Apply
Fixed or Variable? The Question People Love to Ask
(416) 304 0100
Fixed or Variable? The Question People Love to Ask
Fixed or Variable? The Question People Love to Ask

Fixed or Variable? The Question People Love to Ask

  • Home
  • Blog
  • First-time Home Buyers
  • Fixed or Variable? The Question People Love to Ask
Why the Five-year Fixed-rate Mortgage is Overrated
April 8, 2010
Last updated on November 10, 2017
Categories
  • First-time Home Buyers
  • Opinion
Tags
  • Mortgage Rates
  • First-time home buyers-advice
  • Mortgages
  • fixed rate
  • variable rate
  • mortgage

At the root of every borrower’s search for the right mortgage product is the fundamental question, “Should I go fixed or variable?” In their quest for the answer, people will read economic reports, consult their finance friends, search the business section or ask any number of other experts or gurus for the answer to this all important question. For people who ask me, the answer is simple:

There are only ever two factors at play when deciding whether you should choose a fixed or variable rate product: fear and greed.  Borrowers must weigh their fear that rates will go up against their greed for lower interest costs. It’s that simple. We can talk about which way interest rates are likely to go, but if anyone knew for sure they would already be sipping Mai Tais on their private island in the South Pacific. The bottom line is that your decision about whether to choose a fixed or floating rate is fundamentally a reconciliation of your sense of fear and your instinct toward greed.
If fear governs your decisions, then the potential savings of a rock-bottom variable rate are not worth giving up a good night’s sleep worrying about whether your mortgage payment will increase. Fear is good. It keeps you in your house, it gives you predictability, and the cost of insuring against rate rises has never been cheaper. For canada mortgage ratescertain borrowers, fear really should be their governing instinct, and a good mortgage planner will tell you this. For example, first-time home buyers who are stretching their means or people with very fixed incomes shouldn’t be taking interest rate risk. “But what if rates stay low?” you ask. “Weigh the risks,” I say. If rates go up, you could lose your house; if rates stay down, you have effectively paid for insurance you didn’t end up needing. Put in a different context, when you buy fire insurance, you don’t feel as though you made a bad decision if your house doesn’t burn down.  It’s the same idea when you opt for a fixed rate. You’re buying insurance against the pain of rising rates, and if in the end rates don’t go up, it still doesn’t mean that you made the wrong decision.

If greed is your primary instinct, then paying a dollar more than the lowest rate costs you more sleep than worrying if your payment will go up. And the stats are on your side, since historical comparisons of five-year fixed versus floating rates show that in the vast majority of ctoronto mortgage ratesases you would have saved money by choosing variable over fixed. (Click here for a very good report on this topic, done by Moshe A. Milevsky, a professor of Finance at York’s Schulich School of Business.) The greedy among us would also point out that even if rates go up, they have to go up quite a bit (and early in the term) for you to be worse off. Choosing a variable rate product is an excellent option for borrowers who have built up equity in their property, who have enough income to withstand a significant increase in rates, and who have the discipline to put aside the extra money they are saving with the lower rate. For those of you who do choose a variable product, make sure you partner with a mortgage agent who will keep an eye on your mortgage after it funds. This will help you stay informed about what rates are doing, and it never hurts to have an expert in your corner.

best toronto mortgage brokerSo when the real estate section is calling and you’re trying to decide whether to choose fixed or variable, instead of scouring the business section for unreliable interest rate forecasts, look within yourself for the answer to the pivotal question of whether fear or greed is your governing instinct.

I am an independent full-time mortgage broker and industry insider who helps Canadians from coast to coast. If you are purchasing, refinancing or renewing your mortgage, contact me or apply for a Mortgage Check-up to obtain the best available rates and terms.
Share
30

4 Comments

  1. Paul MacKenzie says:
    March 31, 2010 at 10:37 pm

    Hi Dave,

    That was a great article! Your insight into how to better decide between a variable and a fixed mortgage seems a good way to find the right solution. I am looking forward to your next post.

    Paul

  2. Seya Maharaj says:
    April 7, 2010 at 12:35 pm

    Really enjoyed this article! Not only did I learn some things, but also found the advice on weighing one’s own fear vs. greed when selecting a mortgage product to be very insighful. Wish I had read this before I bought my first home!

  3. Doug Pinto says:
    April 8, 2010 at 12:08 pm

    Great article and advice Dave. I appreciate the perspective.

  4. Chantal G Dion says:
    March 2, 2018 at 2:18 pm

    Hi Dave,

    Great article, this helped me see that in my situation, it possibly makes more sense to consider variable rates as I will eventually be able to bare risk. Your article help us get unbiased knowledge and help us study all angles.

    Thank you,

    Chantal

Dave the Mortgage Broker
Integrated Mortgage Planners
David Larock - Mortgage Broker
Integrated Mortgage Planners Inc.
DBA: TMG Integrated Mortgage Planners Inc.
FSRA License #12867
2 St. Clair Avenue West, 18th Floor
Toronto, ON M4V 1L5

(416) 304 0100  - Phone
(888) 406 8939 - Toll Free

Contact us
Useful links
  • Contact
  • About
  • Media
  • Privacy Policy

© 2023 Integrated Mortgage Planners Inc.