Should I stay variable?
By Joe Busillo
People love to simplify things and that is why we have categories for everything. We like clear answers: Yes or No, True or False, Black or White. In sports we have favourites and underdogs. Few people go to a sporting event and say, “I don’t care who wins, I am rooting for both teams”. However, not everything in life is black or white; just ask a zebra!
I have been getting plenty of emails and phone calls lately from clients who want to know whether NOW is the right time to convert their variable rate mortgage to a fixed. The black and white answer to this question is simple. CALL me!
Your situation is going to be different from your neighbour, your best friend, any other home buyer or owner. Here are the 7 most important questions we need to tackle to determine if converting from a variable to a fixed term makes sense.
- What is the current discounted rate you have?
- When is the mortgage up for renewal?
- Have there been any, or do you expect any, life changing events in your near future? I am talking about changing careers, an addition to the family, large reno project etc.
- The Habs not making the playoffs? (Sorry Montreal fans, just kidding.)
- What does my payment change to if the Bank of Canada raises rates again?
- Do I have a large balance on a line of credit?
- Is all this talk of interest rate increases stressing you out?
Don’t panic, the numbers won’t be as shocking as you might think. Just remember, you were qualified at a rate that was likely near the 5% range and therefore you should be able to carry the weight of the additional increase in your regular payment. Here is the math: for every 100k mortgage balance you have, a quarter point increase will cost you about $13 more a month. Not a huge difference, right?
Another thing to remember, you don’t have to convert your mortgage to a 5 year fixed rate. The term should be dependent on how much time has already gone by in your mortgage term. In other words, the time elapsed plus your new term should be equal to or greater than 5 yrs.
If you are 3 years into your variable rate and are nervous about rates going up, you can convert into a 2-year term or greater. Find out what the discounted 2-year term your lender would give you plus the longer term options, and then call your Mortgage Agent or Broker.
Dustan Woodhouse, a respected mortgage expert, from beautiful B.C., posted a fantastic article on the variable rate product. Have a read: http://dustanwoodhouse.ca/variable-rate-mortgage
This may be oversimplifying things, but, your situation is unique to you. Contact your mortgage professional and let them help you make the decision on whether or not it is the right time to convert to a fixed rate mortgage.