Mask On/Mask Off/Mask Maybe

July 1st this year was a day of decisions.  In BC, do we keep wearing our masks, take them off for good or wear them in some places but not others? There are those of us who will play it safe and keep our masks on, some who are done with the masks and will take a bit of risk and those that will wear the mask in some situations but not others.     

With historically low interest rates and the crazy real estate market over the last several months the mask on, off, or maybe reminded me a bit of how we choose our mortgages. 

Fixed Interest Rate / Mask On

• A fixed interest rate for the entire term.
• Rates are usually higher than variable.
• Payments stay the same for the entire term.
• Can be open (paid off at any time without penalty) or closed (penalty applies if paid off before maturity).

Variable Interest Rate / Mask Off

• A variable interest rate can increase and decrease during the term.
• Mortgage payments can be fixed or fluctuate.
• Rates are usually lower than fixed.
• Can be open or closed.

Hybrid Interest Rate / Mask Maybe

• A hybrid or combination mortgage has both fixed and variable interest rates.
• The fixed portion gives you partial protection if interest rates go up.
• The variable portion provides partial benefits if rates fall.
• Each portion may have different terms.

So, which type of mortgage would you choose? If interest rates stay at current low levels, the difference in repayments is not material. But if rates start to rise, variable mortgage holders will see costs rise while fixed mortgage holders will not. The decision comes down to your financial situation and risk tolerance. If you are financially able to withstand a future rate rise, then a variable rate mortgage will save you money if rates remain low or decrease. If you are on a tight budget and/or find the uncertainty of variable rates stressful, the slightly higher cost of a fixed-rate mortgage might be worth it for peace of mind. It is recommended to use the services of a qualified mortgage broker to obtain the most competitive interest rate loan and to secure the most appropriate type of mortgage. We can refer you to a mortgage broker at your request.

We hope you all have a fabulous summer – Mask on, Mask off, or Mask maybe.



The views expressed are those of the author and not necessarily those of RGF Integrated Wealth Management, which makes no representations as to their completeness or accuracy.