Rate for home

[Malarkey]

Hello! I'm not sure I have the right forum but thought I'd start here and see where that goes.



I am new here. I was referred to this community by my brother. I've a keen interest for RE investing and am doing lots of research in the market where I live in Langley - just outside of Vancity. I have been incredibly blessed to have the opportunity to 4 rental properties cash flowing in MB (where I grew up) - my father manages these for me.



My wife and I are in our 20's and are looking to purchase our first "home." While we would REALLY like to purchase an actual "house," it is unfortunately unrealistic in this market in the Fraser Valley. We our looking at townhouses in the $300K range.



My question is, what type of rate should we be looking at for our mortgage - fixed or variable? I've seen some threads on this but thought I would start another one as the interest rate has been in the news lately.



Much Appreciated

Curtis

 

[Sherilynn]

The interest rate is always in the news.



One deciding factor is your comfort level. If you are a worrier and need a fixed rate in order to sleep well, then go fixed. Fixed rates are still near their all-time lows, so the rates are wonderful. One additional thought - to keep your options open and possibly save some money - is to go shorter than a 5-year term. Statistically, most people don't keep a mortgage for 5 years anyway because they either sell or refinance.



On the other hand, a good discount on a variable rate could save money. Rates aren't expected to rise dramatically any time soon.

 

[Thomas Beyer]

Assuming you want to live in the house for at least five years, a five year fixed rate is around 3.4% today, or prime minus 0.4% ie 2.6% right now for a variable rate.



The prime rate will eventually go up, but not before 2015 most likely, perhaps even not until after the next federal election. Variable rates are always always cheaper, on average, than a fixed rate as the banks do not know where rates will be in 3 or five years so they have to add a risk cushion - insurance in other words. Insurance is always a loss, on average, so you have to decide how much insurance you need.



I would go variable and keep some reserves in the unlikely event rates do rise to 4% in 3 or four years, but if they do not you will save.



Use a mortgage broker, not a bank to get the best rate.

 

[invst4profit]

My vote is for variable.

I am a believer in variable always being lower (on average) and as such I have no problem sleeping at night therefore no need to go with a higher fixed rate.

 

[mortgageman]

It's a question of risk vs reward.



If you want the lowest rate available today then go with a variable rate.



If you want or need protection from rate and therefore payment increases then a fixed rate may make sense.



Some people don't get to choose a variable rate mortgage or fixed rate with a term less than five years - at least not for the amount of money they want or need to borrow. That's because the government requires people who want those products to qualify at the Bank of Canada's qualifying rate (5.34 per cent at the time I'm writing this) rather than the contract rate of the mortgage. The government has this higher threshold because it is worried about people not being able to afford their payments when they renew into a rate environment that's likely higher than we have today.

 

[Malarkey]

Thank you all for your replies. They are very insightful. I really appreciate it!



I look forward to learning more through REIN and hopefully be able to contribute in the future.



Curtis

 

[Malarkey]

To any of those who commented or are interested, I recently came across this article which I thought was good re: interest rates:



http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2013/12/the-1-rate-indicator-right-now.html