Trevor Hickey, B.A. - Calgary Mortgage Brokers | Mortgage Brokers Calgary | Calgary 2nd Mortgages

The million dollar question – fixed or variable?

The short answer is this: if you can’t afford the loss – don’t go for the reward!  First off, lets define what a fixed rate is: a fixed rate is a rate that you agree upon with a lender to borrow funds from for a pre-determined length of time.  Ie. today in Calgary, Alberta the 5 year fixed rate is approximately 3.79% – this means that a lender will lend you money for 5 years at 3.79%.

A variable rate is a floating rate that changes throughout your term.  Today in Calgary, Alberta the 5 year variable rate is Prime minus (-) 0.4%.  This means that if prime changes then your interest rate changes.  But what is prime?  Prime is what the banks can borrow money from the central government bank plus a premium ie. if the government will lend the banks money at 1%, the banks will then lend that money out at Prime, which is 1% plus ie. 1% (profit for the bank), so Prime is then 2%. 

Now, it is not mandatory that the banks lend you the money at Prime, Prime minus, or Prime plus – Prime is just a number that the bank can lend in relation to.  So (as seen above) you can borrow money today in Calgary from a Calgary mortgage broker at Prime minus (-) 0.4% 

Now, we’ve all heard in the news that the economy is heating up/cooling down and therefore the government will increase/decrease the interest rates so that they can curb inflation/promote market activity.  So, if you take a variable rate you have to be ready for both an increase and decrease in the rates.  But, as I mentioned before – if you aren’t prepared to take the increase in interest rates then don’t take the variable rate.

Now, there are some typical situations where fixed rates are better for some and variable are open to others. 

Scenario 1:

A student comes to a Calgary mortgage broker and the student can afford the current fixed rates but not much higher.  In this situation I would advise that the student is unlikely to have a sudden burst in income and therefore if rates were to increase substantially, the student would be unable to make the payments.  GO FIXED.

Scenario 2:

A couple walks into a Calgary mortgage brokers office and has substantial income, they want to purchase a rental home and they want to see if they’ll save any money by trying to predict interest rates.  They won’t be devastated if the rates increase, but they’re pretty sure the rates will go down and are prepared to take the risk.  HERE THEY CAN GO FIXED OR VARIABLE.

If you need any advice or you would like a free quote – please call Trevor Hickey, B.A. (or email) at the information below.  Thank you!

Trevor Hickey, B.A.

Mortgage Associate

Concord Mortgage Group Ltd.

#107 – 1905 Centre Street NW

Calgary, Alberta

T2E 2S7

Bus: (403) 290-1990

Cell: (403) 860-8738

Fax: 1-888-587-1426

Email: trevor@concordmortgage.ca

Website: www.mortgagebrokercalgary.info - Calgary Mortgage Brokers

Other articles by Trevor Hickey:

1) What is a reverse mortgage?

2) Can a mortgage help your health?

3) Can you get a mortgage without having payments?

4) Can a Calgary mortgage help you win the Stanley Cup?

5) Have equity but no idea how to make money with it – Edition #1:

6) Are you a millionaire?

7) Can a mortgage be your friend?

8 ) Money can’t buy you happiness – but can it make you happier?

9) How to save money on your Calgary mortgage?

10) Have equity – want to make money?

11) Do you want to lend mortgage money in Calgary, Alberta?

12) Calgary Alberta Private Lenders

13) Is there equity in your home?

14) Why use a broker?

15) Calgary mortgage loan tips – Low rates for your Calgary, Alberta mortgage

Popularity: 85% [?]