Over the past few years, we’ve lived through some very uncertain times – that uncertainty continues right up to the moment that I sat down to write this and will no doubt continue for some time to come.
Uncertainty makes everyone unsure about many things, one of those things that is top of mind for most people is interest rates.
If you are already in a fixed rate mortgage, then your die is cast and your future errr, fixed, at least for the remaining term of your mortgage.
If, on the other hand, you’re in a mortgage with a variable rate and an adjustable payment, there may be some temptation to consider pulling the trigger and switching over to a fixed rate. Here’s why I want you to ignore that temptation:
Let’s say you have a mortgage of $550,000 with a variable rate and a 1% discount off prime. Your mortgage payment, if you are just starting out, is about $2195.
Say you decide to switch to Fixed, then you are looking at an immediate rate increase of over 1.5%. Your payments will jump to $2600 per month once you switch – a $415 increase. The entire $415 will go to paying interest – not one penny of it will pay down principal.
Even if there are 3 prime rate hikes this year ( very likely to happen) – your new payment will be about $2382, meaning you’ll end up paying a little less than $200 more in interest charges.
For me, I will continue to pick uncertainty over certainty and save myself $2400 or more in the short term, possibly thousands more in the longer term.
There are other benefits to a variable rate mortgage that we haven’t talked about here. If you would like to talk about those or anything related to mortgages (or fishing for that matter), just give me a call any time.
