Whatever option you choose, you need to be comfortable with your mortgage payments today, when rates rise, and as your life evolves over time.
Todd Lawrence,
CIBC's Senior Vice President
of Products and Payments
What are the primary considerations that Canadians should keep in mind when choosing between a fixed-rate and variable mortgage, given the current interest rate environment?
Firstly, it's important to base your decisions on more than just where you think interest rates are headed.
Let me explain. A recent CIBC poll suggests that Canadians are more likely to choose a fixed-rate mortgage when they think interest rates are going to rise.
But even the experts can't accurately predict interest rate trends. Despite widespread expectations that rates were heading up, mortgage rates have remained relatively stable.
The far more important consideration is your own personal circumstance. Where do you see your financial situation today and in the future? Whatever option you choose, you need to be comfortable with your mortgage payments today, when rates rise, and as your life evolves over time.
For example, the predictable payments of a fixed-rate mortgage are usually a much more comfortable option for new homeowners facing the additional expenses that come with the first-time home purchase. It's true for families with tighter cash flow as well – if there isn't a lot of excess cash in the budget, a predictable payment is obviously advantageous.
It may also depend on whether you have other debts. If you just have a mortgage, a variable rate may be manageable. But if you have a line of credit with a variable rate as well, it makes sense to consider a fixed-rate mortgage in order to limit your exposure when rates rise.
Finally, consider your comfort level as well as your financial situation. Are you the type of person who needs the certainty of a fixed rate or can you sleep comfortably at night knowing that rates may rise and your payments may increase at some uncertain point in the future?
When they do choose a variable-rate mortgage, we encourage our clients to use today's lower rate environment to get ahead of the curve by increasing their monthly payment to the level it would be at with a higher fixed-rate mortgage. That way, when rates rise, they have limited the impact by paying off more of their mortgage principal early on.