Be aware that you can find a variable rate mortgage at least a quarter to a point lower than any fixed rate mortgage however tread carefully when making your decision. When choosing a variable rate mortgage it makes you subject to unexpected rate hikes and many people decide to switch over to a fixed rate before the term is up. Here are some common mistakes.
Locking in too late
Most people do not have the time to be constantly watching for changes in mortgage rates and by the time they become aware of Bank of Canada mortgage rate increases it is already too late. Fixed mortgage rates are based on the bond market and bond lenders start to raise rates before the Bank of Canada has touched mortgage rates. You may think you can keep a watchful eye on bond yield to figure out where mortgage rates are headed but rates fluctuate greatly and only experienced traders can identify patterns to see what’s coming.
Conversion rates, not your best bet
When you convert from a variable rate your lender is unlikely to give you the best rate on your fixed mortgage. Conversion rates are normally one fifth to one half a percent higher than rates they would give to a new customer. Negotiating a better rate will probably not happen as your lender is aware the penalty you’ll receive for switching mid cycle is too great for you to consider looking for another vendor.
Other things to be aware of
When switching your monthly payment, it will likely increase and you may have to pay a penalty fee in order to lock in or be forced to lock in with major refinancing restrictions.
Variable rate mortgages can be a great option, if you are thinking of switching in the near future, contact Rakhi Madan Mortgage Agent who has been advising residents of the Greater Toronto Area.
