Variable or fixed mortgage rate: What’s the difference and which one to choose?

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Hi everyone, welcome to another edition of Homebuyer's School Today I'm joined by Mujtaba Syed, Manager Mobile Specialist with TD Canada Trust, and today the question we're gonna answer, is What's the difference between a fixed and variable mortgage? So Mo, what is that difference? Yeah, absolutely So a fixed-rate and a variable rate they're just two different types of mortgages —mortgage rates that are available from the bank so a fixed rate just means that your interest rate is fixed, your term is fixed–whichever one you have picked and determined for that certain period of time So if you have a 5 year fixed it just means that your rate is gonna be fixed and your payment's will be guaranteed for that time period A variable just means that if you went with the 5 year variable, that the term is guaranteed for 5 years but the rate can fluctuate with prime, so if prime went up your rate could go up, if prime went down your interest rate could go down, affecting your payment's in both scenarios

So when should I pick a fixed and when should I pick a variable? Absolutely, so that's a–it's a very personal thing, so if you feel like you're very comfortable with variable– you're comfortable with taking risk and you feel like in the future the rates are going to go down, variable is a very good option for that because if rates do go down it would actually impact your rate which would also come down But if rates ever did go up it would actually impact your mortgage rates as well and determining what the payments are going to be based on the new rate A fixed rates very good if you are very determined to pay out pay of your mortgage and you feel like you have a monthly budget put in place and you feel like this is very comfortable for you you don't want your payments to go up, fixed rate is very good in that scenario as well If I was a first-time homebuyer what would you recommend? For my clients, for first-time homebuyers, I definitely recommend–going with the 5 year fixed–is because it's your first time getting into a house, you have set yourself a monthly budget and you're very comfortable with that budget so any surprises could actually throw that budget off

So if you're very comfortable with the payments that you set for yourself, get the 5 year fixed, get comfortable with it and after 5 years after having some experience with your mortgage, definitely take a look at other terms and other great types like a variable to see if you're comfortable with that Is there any–I guess maybe I'm talking about pros and cons–but is there a way that in the long run a fixed or a variable you come out like ahead, or do you save more money with a fixed, you save more money with a variable, or is it all dependent on personal situation? Absolutely, it's a great question, so it really just depends on a lot of different situations, so in Canada for the longest time and recently we've had historically low rates–fixed rates, so it would just–it was a great time to get into interest rates in the last couple years where interest rates were very very low, but that is changing now, so a variable could be a very good option at that time even though variable rate is going up, historically variable has done a lot better, it just averages a lot better with the ups and downs overall, it tends to do a little bit better, once again it's just based on personal preference but historically 5 year variable has done better than the 5 year fixed So Mo, do you have anything else to add for fixed or variable mortgage rates? Yeah, so the best thing I would recommend is this, having a great conversation with your specialist or lender to see what's best for you Maybe a fixed makes more sense, maybe a variable will make more sense, but it will just depend on your personal preference, and with the right knowledge you can actually pick the one that's best for you Great well thank you very much Mo, thank you very much everyone for joining us and remember to watch our previous video on the new mortgage rules in Canada, thank you

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