The long debate of Variable vs. Fixed. We have some answers that may hep you and your clients decided which option is best.
Variable vs. Fixed is Two Bets
#1 Interest expense – Currently there is a 1% difference between variable and fixed. As long as it takes Bank of Canada to move up .25% at a time you have saved the money. Bank of Canada would have to increase 9+ times.
#2 Payout Exposure – In a 5 year fixed with ever Charter Bank and Credit Union the Penalty Math is approx. 4.5% penalty on the mortgage. So on a $400,000 mortgage that costs the client $18,000. 6 out of 10 Canadians break their mortgage. A Variable Penalty works out to .5% of the penalty.
Difference = $16,000
Just on the payout penalty alone we have been able to save them $16,000 in penalty charges with this option. Plus any money they would have saved while making payments at the lower interest rate. This is very important for you the realtor. Say you have a client who wants to sell their property and find a new one. But the new property wont work for porting mortgage (maybe it is out of province, a different type of property or many other scenarios) it could kill the deal for you if the client has a $18,000 penalty vs. a $2000.00 penalty. This is important information for the client to understand and the banks aren’t going to share this with you because it cuts into their products. I will be sure to explain it so they understand the risks and the rewards.
5 year variable rate is at Prime -.1.00%
5 year fixed is 3.44%