Variable Rate currently more than 1% higher than Fixed Rate
Homeowners who are currently in a variable rate mortgage should be aware that the current market conditions are definitely not in their favor. Variable rates are currently more than 1% higher than 5-year fixed mortgage rates, which is an unusual situation. Historically the variable mortgage rates have been lower than the 5yr fixed rate. This means that homeowners who are in a variable rate mortgage are paying significantly more than those who have switched to a 5-year fixed rate mortgage.
If you're currently in a variable rate mortgage, it is important to take note of the interest rate difference between variable and 5-year fixed rates. The difference in interest rate can add up to thousands of dollars over the life of the mortgage. For example, on a $500,000 mortgage, the difference in monthly payments between a variable rate of 5.70% and a 5-year fixed rate of 4.69% is over $200 per month.
Fixed rates offer stability
In addition to the financial benefits, a fixed rate mortgage also offers more stability and predictability when it comes to your monthly mortgage payments. This can be especially important during times of economic uncertainty, like we are currently experiencing. With a fixed rate mortgage, you can budget with confidence, knowing that your monthly mortgage payments will stay the same for the next five years.
It's important to note that before making any decision regarding your mortgage, it's always good to consult with your mortgage agent and check the terms of your mortgage. However, given the current market conditions, it's worth considering switching from a variable rate mortgage to a 5-year fixed rate mortgage. The interest rate difference is significant and can save you thousands of dollars over the life of your mortgage, in addition to providing more stability and predictability in your monthly payments.
One of the biggest advantages of a fixed rate mortgage is the ability to plan for the future. With a fixed rate, you know exactly what your mortgage payments will be for the next five years, which allows you to budget accordingly and make financial plans with confidence. This can be especially beneficial for those who are planning to start a family, make a major purchase, or start a business in the near future.
Protection against uncertain times
Another advantage of a fixed rate mortgage is the protection against interest rate hikes. With a variable rate mortgage, your interest rate is tied to the prime rate, which means that your mortgage payments can increase if the prime rate goes up. This can be financially devastating for homeowners who are living on a tight budget. With a fixed rate mortgage, you are protected against interest rate hikes, and your mortgage payments will stay the same for the next five years.
It's also worth noting that switching from a variable rate to a fixed rate mortgage does not mean you're locked in for the next five years. You can still refinance your mortgage or sell your home at any time. However, if you do decide to refinance or sell your home before the end of the five-year term, you may be subject to penalties. That's why it's important to consider your long-term financial plans before making a decision.
While a fixed rate mortgage may not be the best option for everyone, it is definitely worth considering given the current market conditions. With the yield curve inverted (long term rates are lower than short term rates) and variable rates higher than fixed rates, it's a good time to consider switching to a fixed rate mortgage. The financial benefits and the added stability and predictability can make a big difference in your financial well-being.
In conclusion, homeowners who are currently in a variable rate mortgage should take note of the current market conditions and consider switching to a 5-year fixed rate mortgage. The interest rate difference can save you thousands of dollars over the life of your mortgage, in addition to providing more stability and predictability in your monthly payments. Always consult with a mortgage agent before making a decision and carefully consider your options.