Another Case for Variable Rate Mortgages

Questions found on the Internet that may be relevant to people who read this blog.

Hi anonymous Internet Advisor...

I am currently coming up to the end of my first mortgage term. I went with a 5 year fixed term @ 3.45%, which at the time was a great rate. My bank is now offering 2.25% variable, which would bring my mortgage down by $150/month. I've never been a risk taker financially, which is why I went with the safe bet on the original term. However, I am starting to wonder what the real level of risk is, and if it might be to my benefit to switch to the variable rate, since it is so low right now.

I guess what I am really wondering is, how often do variable rates change, and what are the chances that they would jump way up. I am in Canada if that is relevant.

Short answer;

tl;dr go variable, they change if there is a change in the Prime Rate. Announcements are made 8x a year. 

Don't pay attention to 'sky is falling' headlines
like this one from 2010. 

Longer answer;

Hi- yes, definitely make the change to variable. BUT first, talk with your lender and make sure you are able to lock into a fixed rate at any time. There should be no penalty to do this (as all lenders prefer you to be fixed anyways).

Then, just pay attention to the prime rate announcements (happen 8x a year). Your rate goes up depending on that. Your lender should also inform you when that happens.

Now if you want to play with the numbers you can figure out what your interest paid at 2.25% is vs interest paid at 2.69%. It is highly unlikely the rate will go up anytime before the election and even so it will be in small increments (like .25%) if at all.

Always willing to field questions