There is one thing that the majority of us agree on – interest rates will be going up. It’s only a matter of time. It was thought last week that the Bank of Canada would raise interest rates. It didn’t. Now many people are speculating that they will go up in September.
In a poll recently conducted by CIBC:
61% of respondents believe interest rates will be up this time next year
24% believe that rates will hold their own throughout the next year
3% believe that rates will actually go down through the next year.
But should you choose a variable or a fixed rate mortgage now or might it be better to choose variable and then lock in when rates start to rise?
More than a decade ago when I bought my first house in Canada, I remember a mortgage broker showing me a graph that showed over the past thirty-years, in the long run, variable rate mortgages were cheaper. But that’s me. I don’t mind the risk of not knowing what my expenses will be next year. (I’m a real estate agent. I never know exactly what my income will be either.)
At any rate, choosing the right mortgage depends on your personal financial situation. There’s no single answer for everyone. What can you do?
You should approach the fixed versus variable decision from the inside out, starting with your personal financial goals and working from there. Your mortgage is a major part of your overall financial plan, and your decisions should be based on how your mortgage fits with your long-term financial goals, not on short-term rate fluctuations.
Interestingly, the type of rate that you choose seems to have a lot to do with the stage of life that you are in. According to the CIBC poll a variable rate mortgage would be chosen by:
27% of 25-34 year olds
42% of 45-54 year olds