According to a RBC Homeownership Poll published recently more and more people are choosing a Fixed Rate mortgage term over a Variable rate one. 42% of people who are looking at buying in the near future are considering a fixed rate as compared to 21% for variable.
There are a few reasons for this but also a few things to consider before making your ultimate choice:
In the current rate environment the difference or spread between a fixed and variable rate is almost negligible so some are going with the security and ease of a fixed rate knowing that if rates start going up they are locked in. If you go with a variable rate and rates start going up it wouldn't that much for the rate to be higher than what you could potentially lock into now for 5 or even 7 year fixed terms.
The fact that the discounts available remain very small on a variable rate mortgage term, the spread between fixed and variable remains small and the perception out there that higher rates are on the horizon will keep more people attracted to fixed rate mortgage terms.
One important thing to consider though is what the prepayment charges would be to break a specific term you're in. With a Variable rate mortgage most financial institutions charge 3 months interest. With a fixed term it is 3 months interest OR the Interest Rate Differential whichever is GREATER. This is key as the IRD (Interest Rate Differential) can sometimes be quite large and is definitely something to consider when choosing.
Another option is splitting your mortgage term between fixed and variable which, over the long term, this could possibly bring you the best of both worlds.
Your mortgage advisor should be discussing all the options with you to ensure you are choosing the best option for your individual circumstances.
Click on the link to read the full article on this latest poll from RBC: Homeownership Poll.
Tony Marchigiano | Mortgage Specialist | Royal Bank of Canada | T. 604-505-7109