To continue with my post yesterday about how we are building our next home, I now have to consider whether to go variable or fixed on my next mortgage.
On one hand, variable rates (I was quoted prime – 0.85) have historically beaten 5 year fixed rates over the long haul. From my reading though, it seems as though prime will probably increase 3 or 4 more times in the next 12 months, with no economic slow down in sight. However, the high CAD$ may help keep prime stable at close to current levels because if prime goes up, the Canadian dollar will follow. A high dollar hurts Canadian exporting companies, which in turn slows down that portion of the economy.
On the other hand, with a fixed rate (quoted 5.90% last week), I get the peace of mind of knowing my rate that I pay month after month without having to worry about what prime is or will be.
I expect my mortgage to be around $160,000, so the question being, what should I do? Go variable or fixed? With prime being 6%, my variable rate would be 5.15% but with the pending increases, my variable rate could go as high as 6.15% (or higher?). However, I could lock in now at 5.90% and be done with it, but 5.90% seems like an awfully high fixed rate to pay. Perhaps it’s because my current mortgage is @ 4.59%.
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