Variable VS Fixed Mortgages

One of the main considerations when getting a mortgage if whether to lock in your rate or choose a variable rate mortgage. I always educate my clients on the pros and cons of each mortgage type and then help them make a decision that will be best for their financial situation and risk profile. I have mentioned before that historically a client you chooses a variable rate will be better off in the long run. Sure, there are ups with the downs, but on average they are paying less interest than their counterparts who lock in for extended terms. I think the graph below illustrates this point nicely

To see what I mean, pick a point on the green line (fixed rates) and then draw a line straight across the page (to the right). See how many times the orange line crosses above the line you drew. This will tell you how many times the variable rate would have been equal to or greater than the fixed rate mortgage you chose. Most of the time the variable rate is well below. It will be interesting to see how this holds up in the next 5 years. With fixed rates so low and variable rates poised to start climbing  (no one knows how high), we might actually see variable rates cross above today’s fixed rates and remain substantially higher. only time will tell.

I would be interested to hear your comments and thoughts on the subject.

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