When it comes to mortgages, the age-old question remains: “Should I go with a variable or fixed-rate?”. To make an informed decision, it is important to look at the type of buyer and the historical trends.
Should I get a fixed mortgage or a variable mortgage?
When it comes to fixed rate mortgages vs. variable rate, it’s important to understand where they derive their name from and their differences based on their characteristics. Fixed-rate mortgages are so named because they’re interest is set, with payments that can change based on factors such as the type of plan chosen at time of purchase. Variable-rate mortgages are those whose interest is not fixed over the course of a loan, according to the Bank rate website . These particular loans either have a payment in which you could choose to make partial or full payments depending on whether your income allows for you to pay your debt, or if you’re working off an outstanding balance instead.
In the last 10 years, the prime lending rate has gone from 2.50% to 3.95% and now sits at 2.45% as of January 2022. Due to recent events, these rates have seen even more of a downturn providing huge benefits to new borrowers looking to pay as little as possible.
Why you should consider getting a variable mortgage in 2022?
Explore the benefits of variable mortgages
If you have a variable-rate mortgage, there are a couple of unique benefits that come with it: if your interest rates drop, then your monthly payments will also be lower; however, if you have fixed payments, this is wonderful news because extra pennies towards the principle reduce the amortization of your term by up to three years – which can be quite helpful over the life of a 25 or 30 year mortgage.
Let’s look at the following example:
Amy and Jake have a balance owing of $300,000 on their mortgage with a variable rate at Prime minus .80%, (giving us 1.65%) with current payments set at $703 bi-weekly. The mortgage matures in 24 months but they are considering locking in for a new five-year term at 3.34%. New payments would be $739. As much as they love their home, they are considering a move in the next couple years.
In short, it’s best for homeowners to keep their remaining adjustable mortgage in place for 2 years. If they base their payments on the 3.34% instead of $739 per month, they will be able to save an extra $72 each month. In 2 years, the interest saved would be approximately $4,000 and their outstanding balance would be $4,000 less than if they had just stayed with a fixed mortgage rate.
Another benefit of variable-rate mortgages is that if you choose to sell before your mortgage term is up, the penalty is not as big a hit as it would for a fixed-rate mortgage. With this strategy, people can continue taking advantage of the lower variable rate but don’t have to opt to lock themselves in today.
Should you get a variable mortgage in 2022?
If your mortgage is maturing in the next 90-180 days and you’re not quite sure what to do, it is a good idea to contact Concept One Financial Group – a team of mortgage professionals who work for our customers – not the lenders – to ensure our customers receive the best rates and products available in today’s marketplace. Whether they are looking to purchase their very first homes or upgrade to a new home, mortgage renewal, refinance for equity take-out, purchase investment properties.
Not only can they provide tips for your existing variable-rate mortgage to help save you money, but they can help you assess whether fixed-rate is right for you or if you should make the switch.