Many people wonder if a variable rate mortgage is the better choice compared to a fixed-rate mortgage, particularly in today’s uncertain economic times. For instance, recent rate increases have persuaded many to opt for a fixed-rate mortgage over a variable rate mortgage, as it provides added security and certainty.

However, there is a price to pay for said security, as fixed-rate mortgages tend to cost 0.75% more than their variable counterpart. To illustrate, if you were to take out a $350,000 mortgage on your home, then the payment difference between a fixed rate and variable rate mortgage would translate to roughly $135.00 a month. Here, we will delve deeper into the two options to determine which option is better in today’s economy.

Reduce Your Debts With a Variable Rate Mortgage

By opting for a variable rate mortgage, you can take the lower payment and use the savings to reduce your other debts. For example, you can use the money to pay down a line of credit or reduce your credit card debt (or other such higher interest rate debts). You can also use the money to accelerate loan repayments on some of your personal loans.

Moreover, you can keep the additional cash in liquid savings for use in the not too distant future, or you can invest in your child’s college education via RESPs, or even invest in your retirement via RRSPs.

How to Maximize the Benefits of a Variable Rate Mortgage

Arguably, the ideal way to take advantage of the payment savings is to augment the payment on your variable rate mortgage so that it matches the amount of a fixed-rate mortgage. By doing so, you will lower the principal on your mortgage at an accelerated level.

You will also be able to lower the impact that prime rate hikes will have throughout your mortgage.

Interestingly, many economists have prognosticated that prime rates will increase by roughly 0.25% every 6 months for the next year and a half. If the economists are right with their prediction, then your variable rate mortgage would reach the same level or rate your fixed-rate loan would have been at the time.

Furthermore, if the economists are wrong, and the prime rates don’t increase, then the variable rate mortgage will still come out more favourably over its fixed-rate counterpart.

As an added benefit, variable-rate mortgages offer the same repayment options as other mortgage packages. You also benefit from reduced payout penalties if you need to sell in the foreseeable future.

The Northwood Mortgage Difference

If you would like to learn more about the benefits of a variable rate mortgage, please visit Northwood Mortgage on our website. You can also contact us at 888-492-3690 for a free, no-obligation quote and consultation to discuss your mortgage needs in confidence.