What are the rates out there? What is the Forecast? ?Are you a risk averse person?
#InterestRateHike
So I've had a lot of people reach out to me in the last 24 hours asking me for my opinion on if I think variable rate mortgages or fixed rate mortgages are the way to go.
So let's rewind the clock. We've had three rate increases in the last few months. We had a 25 basis point increase. We had a 50 basis point increase in April. And then June 1st, now we have another 50 basis point increase. So let's start with what are the rates out there today as of June 2nd. Fixed rate mortgages, five year fixed rate mortgages, are hovering around the 4.5 to 5% amongst the A banks, okay? Variable rate mortgages are hovering around the 2.5 to 3% mark. So you've got about a 2% spread between variable rates and fixed rates if you were to consider locking into a variable rate today. So that's number one to consider.
The second point to look at is what is the forecast? I believe we're gonna see a few more interest rate hikes this year. I think there's gonna be another half a point increase. Right after that, I think there'll be another quarter of a point and another quarter of a point, so another 1% increase. This is my guess, okay? So if we see another 1% increase in rates, your variable rate would go up from two and a half to, say, three and a half. Still cheaper than the fixed rate, which is around the four and a half percent mark. So that would be one guiding principle I would use in deciding if I should be locking in at this time.
The second point I would consider, when you are in a variable rate mortgage, realize that if you were to break that mortgage, if you were to sell that property, win the lottery and pay off your mortgage, the penalty is only three months of interest.
Three. So that's a very important point to keep in mind. If you are in a fixed term mortgage, the penalty is defined as interest rate differential which can exceed 10, 15, $20,000. A pretty large sum. So if you lock into a fixed mortgage, yeah, you're locked in for five years. But if you decide to break it, the penalty can be large. These are other factors that you need to consider. So if you think you're gonna be moving, well, you know what? Variable might be a better way to go just in order to save the penalty.
And the last point that you must consider is you need to look deep inside and you've gotta decide if you are a risk averse person or you're willing to take on some risk. And if you can't sleep at night because rates are changing and your payments are changing, it's probably better to go with a fixed rate mortgage and not worry about it for five years. These are the three things you need to look at before you decide.
Introduction: As interest rates continue to rise, many homeowners are wondering if they should switch to a variable rate or stay in a fixed rate mortgage. There are pros and cons to both options, and it ultimately comes down to what is best for your individual situation. In this blog post, we'll explore the current interest rates, the forecast for the coming months, and whether you should switch to a variable rate or stay in a fixed rate mortgage.
Current interest rates: The current interest rates for both variable and fixed rate mortgages are relatively low. However, the interest rates for variable rate mortgages are expected to increase in the coming months. If you are considering switching to a variable rate mortgage, it is important to weigh the potential risks and benefits.
Forecast: The forecast for interest rates is somewhat uncertain. Many experts believe that interest rates will continue to rise in the near future, but there is no guarantee. If you are considering switching to a variable rate mortgage, it is important to be aware of the potential risks involved.
Are you a risk averse person?: One of the main things to consider when deciding whether to switch to a variable rate mortgage is your own personal risk tolerance. If you are the type of person who prefers stability and predictability, then a fixed rate mortgage may be a better option for you. However, if you are willing to take on more risk in exchange for the potential for higher rewards, then a variable rate mortgage could be a good choice.
Ultimately, the decision of whether to switch to a variable rate mortgage or stay in a fixed rate mortgage depends on your own personal circumstances and risk tolerance. It is important to weigh all of the factors involved before making a decision.
