The Great Debate:  Should I Float or Fix my Interest Rate?

This is the most frequently asked question from people I meet for the first time.

It is not an easy question to answer especially in light of the recent "sub prime debacle" forcing changes to the financing landscape in the U.S.  For a better understanding of the sub prime market, see my April newsletter.

Even though the Canadian real estate market is healthy, fixed rate increases are predicted over the next 6 – 12 months because the majority of Canadian mortgages are secured by U.S. investors and commercial paper.

We are already seeing changes in variable rate mortgages where the previous norm was to have rates of prime - .90% (or 5.35% currently).  Lenders are now trending towards prime - .50%.

What does this mean to you?

If your mortgage is coming up for renewal in the next few months, it may be prudent to choose the heavily discounted variable rate mortgage while it is still available with some lenders. Then you will have the flexibility to convert to a fixed rate product at a later date if you wish, with no penalty. You may also want to think about the pre-approved process.  This will safeguard you from increases in fixed mortgage rates.

The Bank of Canada has already announced that it is unlikely there will be any increases in the prime lending rate for the balance of the year - so the variable rate mortgage seems like a better option.

My answer to the "float or fix" question has always been and still remains … "it depends on your comfort level".

Are you the type of person that is okay with fluctuations in the prime lending rate and aren't really worried when your payments are increasing?  Or, are you the type of person that likes to know what is coming out of your bank account every month?

Follow your instincts and your comfort level and make sure that you get professional advice tailored to your unique situation.  Contact Tracy Irwin, AMP today!

The movers have left, the furniture is in place, and now it is time to apply your own personal touch to your home. What will you do with the windows? What if you need privacy or want to block an unattractive view, without blocking all of the natural light? Consider using Decorative Art Glass.
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» Life lessons from golf by Scott Sindelar, Ph.D., BCFE

» Principle # 5 - In golf and in life, we play with old friends and/or make new ones.  In golf as in life, it is important to have friends with whom we can share our successes and laugh about our misses.  Although we play different holes, at different times, and on different courses, we are all in the game together.