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Fixed or Variable?

October 8, 2009

I wanted to expand on CIBC’s Benjamin Tal’s Q&A session that came out of his Market Insight presentation last week. On page 2 of his report (see link below) he states that interest rates will rise roughly 200-250 basis points over the course of the next 2 years or so. What does this mean to Canadian homeowners? Well as we wait to see how mortgage rates will be impacted by the economic recovery, the real question consumers should be asking is should I go fixed or variable? The answer depends on what you want your mortgage repayment strategy to look like. Allow me to explain, if you are looking to pay just the minimum payment on a month to month basis I suggest that you go fixed. But if you want to lower the amount of time it takes to pay down your mortgage i.e., you want to pay down your mortgage faster, you can accelerate your payments by taking a variable rate mortgage. Going this route allows you to pay off more of your principal every payment, so as rates rise you will be paying a little more interest on a smaller mortgage amount.

In the end make sure you have a mortgage strategy not just a mortgage.

To read Benjamin Tal’s article Click Here