When Canadians are given the choice between going for a variable interest rate, or a fixed interest rate, they overwhelmingly choose the variable interest rate. The variable interest rate changes as interest rates change. The benefit behind this is that they allow home owners to take advantage of the interest rates when they are low, even if they bought their home when interest rates were high. The problem is that if they bought their home when interest rates were low, and the interest rate goes up, they end up paying more than they expected.
A fixed mortgage rate does not change, meaning that homeowners can take advantage of low rates even when rates are high, but may be stuck in high interest rates when the actual interest rate is low.
According to the industry experts, only one-third of borrowers, about 34.3 percent, chose to get a fixed interest rate in September. This was the lowest amount of fixed mortgages all year long and it is expected this trend will continue into October and beyond.
The reason for this is that many homeowners want to take advantage of the lower interest rates, which are currently at their lowest points ever, while they can, without being locked into an interest rate that may be higher.
Choosing between a fixed interest rate and a variable interest rate can be difficult for many homeowners to do. While some will want to have a low interest rate for the next five years, others want to see if the interest rate goes lower and whether or not they can get even more savings on the home that they want to buy. The Bank of Canada has already said interest rates will not change before June 2010, which means there is still plenty of time for homeowners to choose to have a fixed rate over a variable rate. However, the interest rate is expected to go up because the housing market is doing much better. If it goes up, those who locked into a low fixed rate mortgage will benefit while those who have a variable mortgage will suffer. If the housing market goes down and the interest rate goes even lower, than those with a variable mortgage will benefit more.
If you are thinking of buying a home, then you should look at the pros and cons of fixed and variable interest rates and choose the one that is best for you.
Posted: 2009-11-02 14:28:08
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