Summertime and the livin’ is easy…but that doesn’t mean picking a mortgage is. What to do? Should one go with a variable/adjustable mortgage in the low 4% range or take the more conservative and safe choice with a fixed rate in the mid 5% range?

Decisions decisions…

While the spread between the variable and fixed mortgage today of more than a full percentage point makes it seem like a no brainer. Especially considering with the variable rate mortgage you always have the option of locking into a fixed rate at anytime. But fears of inflation caused by high energy costs filtering through the economy cloud the picture, since the one way the Bank of Canada fights inflation is to raise rates.

Although with a spread greater than 1% between these mortgage options, that means the Bank of Canada has to raise the prime rate a point and a half before the variable would be in the same territory of today’s fixed rates. This is due to the fact that variable rate mortgages, when you shop around at mortgage brokerages such as Buyingblock.com, can be found discounted below prime as much as .65%. So a good argument to go is variable. Especially considering jumps of that magnitude would likely raise the Canadian dollar at a time when the manufacturing sector is ailing and our biggest trading partner is flirting with a recession, which likely will bleed over the border. Also, many experts have been suggesting that this recession or slow down will tame some of the inflationary pressures.

So if you think you can handle some flexibility in your mortgage payment there is a chance for savings going the variable/adjustable route. But, if you’re more inclined to know your budget for the next 3 to 7 years, the fixed is an attractive option since even in the 5% range we are near historic mortgage rate lows.

Michael Pezzack, AMP
Mortgage Agent, Buyingblock.com