VariableRate Mortgages – To Lock In or Not to Lock In

Times have been unprecedented over the last 3 years, things have been crazy! If you got a variable rate mortgage in the last year, you are probably kicking yourself for not seeing this coming and not choosing a fix rate. We have to take a step back and ask ourselves, why did we choose variable in the first place? For me, being a mortgage broker who has chosen to go variable herself, appreciates flexibility and not to be handcuffed to a lender with mortgage penalties.

Lots of us did not see these aggressive hikes coming, from the federal government's ill-informed announcements about rates supposedly staying low for 24 to 36 months, and then under a year later, they started the aggressive rate hikes and everyone was caught off guard, and proceeded to stay in variable.

Historically, Variable rate mortgages have always has outperformed the fix rate mortgage and 6/10 Canadians break their mortgage before the term is up. That is a huge stat and massive amounts of penalties paid to the bank in the form of IRD (interest rate differential penalties) being paid needlessly.

If you are a longer term variable rate mortgage holder, you have gone with the market and have benefited from doing so with paying less in interest over the long run.

Now that the Bank of Canada has taken us on the interest rate rollercoaster ride of our lives, we are questioning if we made the right decision. Locking in won’t make sense for everyone and it will depend on your individual circumstances and future goals and plans.

If you considering locking in, these are the questions you have to ask yourself:

1) Where am I in my mortgage term?

2) What is the plan for this property? Selling or keeping? Future refinance to pull out equity for another purchase?

3) What fix rate and term will my existing lender allow me to switch into?

4) Is there a better rate option if you just moved lenders?
5) If you have a static payment, what is my trigger rate? What is my trigger point?

6) If I hit my trigger rate, does my lender automatically increase my payment to keep amortization in line or can I simply increase my payment to cover the minimum interest due?

7) If my payment has been increasing, will the lender allow me to simply re-set my amortization period to bring the monthly payment down?

8) If I have an adjustable rate mortgage (Payment moves with prime rate), do I stay the variable course and move to a lender with a static payment?

If you would like guidance on how to proceed with your variable rate mortgage, I would be happy to connect with you to answer any questions that would help you make an informative decision.