Wednesday, February 2, 2011

Decision Time: Fixed or Variable?

My mortgage papers came through yesterday - I have to decide before I sign off on them whether I am going with a fixed or variable rate.

Here are the numbers:
Fixed: 3.99%
Variable: 2.3%

Paying 3.99% monthly on a mortgage of $160,957 (principal, CMHC insurance, HST on said insurance) = $845.79.  Paying 2.3% on the same mortgage = $705.10.

Once the paperwork is back with the accurate downpayment amount what I'm planning on selecting is the variable rate mortgage, but make my payments as if I had signed up for the fixed rate.  If the variable rate hovers around 2.3% for even just a year I will have paid down an "extra" $1,688.28 on my principle.  If I continue this throughout the mortgage I'll reduce the amortization period by about 6 years.  I'll also be selecting bi-weekly payments, reducing the length of the mortgage by another 2-3 years.

Looking at the numbers, would you have done the same?


  1. We tried do the same thing, pay more on our variable just as if we were paying fixed. Make sure you can lock in at anytime with no charge just in case the payments get higher than you can pay out.

  2. Wow, that's so lucky, the interest rae in NZ is about 6% right now :(

  3. Definitely variable. We don't expect Bank of Canada to raise the rate anytime soon, or very much.

    Just check with your lender about what happens when interest rate do rise/fall.

    When we were hit with an interest rate rise, our bank did not increase our payment, rather automatically extending our amortization.