Trying to Decide Between Fixed and Variable? Don’t (at least for now).
Trying to Decide Between Fixed and Variable?
Don’t. Read on to uncover some strategy behind making this decision. Or not making the decision.
Anyone who has an impending purchase, or mortgage renewal coming up, has a decision to make. Do you go fixed, or variable? Do you go short term, or long term? These decisions rack some people’s brains quite a bit, and for good reason. It’s one of the most impactful financial decisions you’ll ever make.
(Side note – I’m not only a mortgage broker, but I’m also a psychologist of sorts, guiding my clients to come to an understanding on what mortgage term they prefer. They need me to ask them the right questions, give them all perspectives, so that they can be fully informed, and ultimately feel comfortable and happy with their decision).
Anyways, let’s first think about the concept of you being forced into making this decision. Because you have an impending purchase or mortgage renewal coming up, you’re being “forced” into making the decision about your mortgage. Obvious, right?
But what if I said you didn’t have to make the decision at all?
What?
You’re thinking, “David, that doesn’t make sense, I’ll have to decide between going fixed and variable”.
Sure. You will have to decide, but let’s think about it from a different perspective.
What if I told you that when you’re in a variable rate mortgage, you can LOCK IN to fixed rates anytime you want with your existing lender, without a penalty? And what if I told you that the penalty to payout your variable rate mortgage was a predictable 3 months interest, and no more?
Variable = Open (sort of) = Options
When you combine both of these characteristics (lock in ability and penalty limitation), the variable mortgage mirrors an open mortgage, of sorts. Open being that you can change your borrowing to a fixed rate WHEN you decide, and until then, you coast. Down the line, you’ll most likely lock into a lower rate than what’s available now, saving you more in interest over the long term. And, if your lender is dimwitted enough NOT to offer you the best rate at that time, you can payout the mortgage with a predictable penalty, and move the mortgage to the lender with the lowest rate. Insider long time banker tip – this won’t happen. Your lender will most likely give you competitive rates at lock in time. There’s an old saying in sales – it’s EASIER to keep a client rather than FIND a new client. Your variable rate lender is going to give you the best rates at your lock in time, because they don’t want to lose your business for nothing.
So what does this all mean?
It means that if you take a variable mortgage now, you give yourself all the options moving forward. You can stay variable as long as you want, or you can lock in whenever you want. It’s kind of like the best of both worlds. You don’t force yourself into the fixed versus variable debate. You just take a variable rate, and then wait. Wait for what? Well, that’s up to you. You can wait for rates to get back down to our previous lows, but you’ll be waiting forever. (HINT – rates are not going to go to our previous lows).
You could wait 6 months, you could wait a year. You could wait until the US election, where there may be unrest (and unrest can bring lower rates). So, you can wait for a specific period of time, you can wait for some world events to occur, or you could just wait for the rate to come down low enough to a trigger point that you’ve decided upon. For example, I have some clients that have set their trigger rate at 4.25%. Once the fixed rates hit that mark, they will lock in, with their lender.
The point is, it’s up to you. You leave yourself options, and you decide.
You don’t even have to lock in and just stay variable for the term, if you prefer. Historically, people have generally benefitted by staying variable over the long term.
Now, I’ve been meaning to write this article for a while now, and it’s totally coincidental that we have an INSANE new variable rate special. It’s 6.19% (p-1.01%), but this is for CONVENTIONAL money, meaning, it is eligible for refinances, amortizations up to 30 years, and, it doesn’t have to be insured! This rate special is great for people who need a bit of extra funds out of their home, as the rate special is refinance eligible. So, you get a super low rate, comparable to insured rates, but on an uninsured mortgage with lower payments.
Call me to learn more about this great deal, and we can help you strategize your debt strategy.
That’s probably enough for now. I could keep going, but your eyes might be glazing over and you’re getting bored.
There’s a few important disclaimers here.
1. Unfortunately, not everyone will qualify for a variable rate, as the stress test for the variable rate is around 0.75% higher than the stress test on fixed rates. So, some people are automatically forced into choosing a fixed rate, and this debate is, well, moot.
2. The variable rate is not for everyone, and I cannot claim that it is the right solution for everyone. Yes, right now I tend to lean more towards the variable rates, because I do think rates are coming down. But that does not mean the variable rate is for everyone. In some cases, depending on the client’s feelings about risk and tolerance for risk, I will recommend a fixed rate, and do my darndest to find that client the lowest fixed rates.
3. It is my general understanding that rates are probably going to go down. I could be wrong. Things could change in this market, inflation could take a turn for the worse, and we could find ourselves with higher fixed rates. So, it might take longer for rates to come down, or they might not come down at all. It’s all just a guess. Now, I do have a bit of background specifically in “risk management” (my major in Uni was a split between Finance and Risk Management). Risk management was mostly just about insurance, but it did give me some unique views into the psychology of risk, and being able to understand statistics. In my estimation, there is a much greater chance that rates are going to come down, versus go back up. It’s not impossible for rates to go back up, it’s just far more unlikely.
Ok, now that’s really enough. Feedback is encouraged and appreciated. Unless it’s an unsubscribe. Ha!
Signing off for now,
David Steinberg, AMP, BComm
Mortgage Psychologist and Lead Broker At Olympic Mortgage
250-858-7160
david@olympicmortgages.ca
Here’s my little promo video:
Watch my Promo Clip on Fixed Versus Variable Here!
Welcome Nicole McConnell To The Olympic Mortgage Team!
Olympic Mortgage welcomes Nicole McConnell to the team. Nicole is outgoing, smart and strategic, and has excellent organizational skills, all of which are crucial in a successful mortgage agent. Nicole’s clients will benefit from her passion to help those around her. She is committed to ensuring her clients get the best customer service, professional advice, and lowest mortgage rates.
Nicole became a mortgage agent with Olympic Mortgage after an extensive career in the military. After a 24 year stint with the DND, Nicole is especially excited to help her fellow military friends and family navigate the tricky world of getting a mortgage.
Nicole is involved in the Langford and Victoria communities, most recently helping out her son’s Juan De Fuca hockey team as the financial manager. Just another example of how Nicole uses her skills as a force for good.
Check out Nicole’s webpage to learn more, email her at nicole@mcconnellmortgages.com, or give her a call at 250-580-5196. She is happy to assist you with all your mortgage needs.
Rate Update:
While fixed rates have crept up slightly in the last few weeks, we are still sourcing some amazing rates for our clients.
Last week, we were able to compete with an online lender and grab a client 4.84% on 3 year fixed money, high ratio insured. Another client got 4.84% from the same lender on a 5 year fixed.
As stated in my article, we have a great new variable rate special, on CONVENTIONAL money. Check out this comparison:
INSURED – as low as 6.14%
-no refinances, only eligible purchases and some renewals
-25 year amortization MAX
-debt servicing MUST be within 39GDS/44TDS
-purchase MUST be below $1,000,000
-NO income exceptions
VERSUS our new rate special (more options, easier to get approved):
CONVENTIONAL @ 25 years – 6.19%
CONVENTIONAL @ 30 years – 6.29%
-Refinancing Eligible!
-Up to 50% TDS for files that make sense
-income exceptions for files that make sense
-up to 30 year amortizations
15 Minutes To Financial Clarity! Really!
In our 15 minute discovery zoom call together, we’ll go over things like:
- Simple overview of our job as your mortgage broker, and the steps involved (if it’s your first time, or first time with us).
- Your request. What are your goals?
- Your financial situation and any extraordinary circumstances that could affect things.
- What I think we can do for you, your chances, expectations for interest rates and terms.
- Option for zoom meetings: showing you on the mortgage calculator, or your application in our system.
- Next steps. How we collect and use your information, and processing timeframes.
- Interest rate expectations and getting an idea of implications in going fixed vs variable, short or long term decisions.
All that in 15 minutes? Well, we might go to 30 mins if we need to, or book another call if either of us has to jump off. (Hint, I tend to leave a 15 minute breather between calls now)
Looking forward to talking to you,
David
Happy Vaisakhi!
Olympic Mortgage was proud to participate in the Vaisakhi festival along with our broker, Kamal Sandhu. We met lots of great people, served up over 1000 plates of curry over two festivals, and had a ton of fun in the process! Special shout out to Nicole McConnell for coming out and helping out, and as always, great job to Kamal Sandhu for putting up a great booth!
Review Of The Week:
“Great regular newsletter about mortgages and interest. Professional to deal with and tells it like it is. Also works quickly. David is courteous and professional to deal with” – Says Dana on Google.
Thank you Dana for the great review!
Thanks for reading! As always, please contact us at info@olympicmortgages.ca or call us at 2508587160, if you have any mortgage questions, or would like us to quote you a rate on your mortgage.