🔄 Variable to Fixed Rate: What to Expect 🏦💰
If recent economic news has you contemplating the switch from a variable rate mortgage to a fixed rate, it's essential to understand the implications. Here's what you can anticipate:
💸 Higher Interest Rate:
When you lock into a fixed rate, expect to pay a higher interest rate for the remaining term of your mortgage. This is a trade-off for the stability and predictability that a fixed rate offers. Variable rate mortgages typically start with lower rates, which is why many homeowners initially choose them.
📉 Potential Higher Mortgage Penalty:
Breaking a mortgage before the term ends can result in a penalty, and this is especially true with fixed rate mortgages. Each lender has a unique calculation method, but generally, breaking a variable rate mortgage incurs a penalty of about three months' interest or around 0.5% of the total mortgage balance.
⌛ Life Happens:
It's worth noting that nearly 60% of Canadians will break their current mortgage, on average, around 38 months into the term. While you may intend to stick with your existing mortgage until the end, circumstances can change, necessitating a modification.
By switching your variable rate mortgage to a fixed rate, you voluntarily choose to pay more interest to the lender while sacrificing some flexibility should you need to break your mortgage.
