Fixed or Variable – Don’t Get Lured by the feeling of Security
March 23, 2011
Decent video clip from Dale Jackson over at BNN on today’s “Personal Investor Tip”. Dale explains how banks make more money off of selling fixed rate mortgages; hence, the underlining motivator for making people insecure about taking a variable rate mortgage.
Remember, when taking a variable rate mortgage you must know the lock in feature of your variable rate mortgage i.e., what are the terms and conditions if you choose to lock in before your 5 year term is up (your mortgage agent would advise you of this). One place where we disagree with Dale is the “cost of security”. Even if mortgage rates were to increase by 1%, as per the example he uses in the clip, your mortgage rate would still be below today’s 5 year fixed rate, and you would be paying it down on your terms, not your bank’s. With that said, Dale does remind you how history has always proven that over a long period of time you will save tens of thousands of dollars….so if you are looking for security against rising interest rates, take a variable rate mortgage and pay it off as if you are paying a fixed rate mortgage. More of your money will go towards the principal of your mortgage and you will (as Dale states) SAVE TENS OF THOUSANDS OF DOLLARS.