Should you get a fixed rate mortgage or a variable rate mortgage?
It's actually not so much about rate even though that's important.
The determining factors is actually based on two things,
your budget and your risk tolerance.
Hey guys,
my name is Felix Chan realtor and mortgage broker with the LiveInnerCity real
estate team, where we bring you the best real estate tips, mortgage advice,
and home tours. Okay, let's get into it. Now,
I'm gonna explain what the difference is between the fixed and the variable rate
mortgage. And I'm gonna show you a graph of where, you know,
the five-year fixed rate could be going and
explain afterwards
what you should consider when determining if you should get a fixed or variable
rate mortgage. Okay.
Now the fixed rates they're correlated with the the
government of Canada bond yields.
So here I have a graph five year bond yields.
So this gives us an indication of where the five year fixed rate is going.
If you wanna know where the three year fixed rate is going,
then you look at the three year governmental Canada bond yields.
Now this is a monthly chart that I've pulled up here. Okay. And, oh,
and before I move on,
I just wanna let you know that for the variable rates they are based on
the bank of Canada's prime rate.
Now the bank of Canada meets eight times throughout the year,
which means that they are able to change the prime rates during
these meetings. Okay. And I'm gonna explain why that's relevant soon after this.
So again,
this is the chart of the five year bond yields dating pre-1987.
This is a monthly chart and you can see that we were in a barrish
trend and we broke through the barrish structure on
November November of 2016. Okay.
Now I'm used to drawing support and resistance lines for equities and
cryptocurrencies not so much for
the bond yields. And I think that it kind of gives us a you know,
a decent indication of where we might be going.
So I drew a support line here and kind of goes back from
2011 where, I guess starting in 2013,
cuz we do have a support here.
We do have resistance here another support point,
and now you can see that we're are,
we are above this support line now we overall we're
still above the resistance line. Okay.
And the thing that we need to keep in mind is that even though we broke a
newer high, recently, this is a lower, low. Okay.
And even though this part didn't reach up high,
we're still kind of testing that right now.
So I think that if we were to hit up and
come close to this where the top is right here,
then it could break through.
Right? And so that's kind of where you have, have to keep in mind of, okay,
well,
fixed rates will actually get much higher than the
2018 high here.
And as long as it stays above this resistance line then
you know, we would probably be trading sideways for a it,
and that's what it looks like we're doing right now. Now,
if you wanna have a more immediate chart you can always take a look
at the weekly
and you you'll be able to see a little bit more of the ups and downs.
So you guys can see that from summer of last year to today,
we've just kind of been on a tear. Now will this continue?
It's hard to say obviously I don't have a crystal ball,
but I wanted to give you guys this resource so that if you
want to know where the fixed rates are could be growing,
then this is an indicator that you can look at. All right. Now,
the difference between the fixed and variable rate now variable rates
are based on the prime rate.
So anytime the bank of Canada changes prime rate so too,
will your mortgage payment, it could go up, it could go down.
Chancellor can go up. Now in times of high inflation,
the central banks typically increase rates,
economists have been predicting. They could go prime rates could go up.
As soon as this month here in January of 2022,
how high will it go? It's hard to say,
but this is the formula of finding out what is gonna be best for you. So,
as an example right now charter banks for both a five year fixed and then
five year variable, okay.
The five year fixed is around 2.89%.
The five year variable is 1.65%.
A difference of 1.24%.
Typically when the bank of Canada changes the prime rate,
they change it in increments of a quarter percent. So 0.25 of a percent.
Sometimes they may do something less at, at 0.15%.
Okay. Now let's just say as a baseline, they're gonna,
they would change it in quarter a quarter of a percent.
So with a difference of 1.24%,
that means that the prime rate would basically have to go up
five times for you to break even to what you would be paying
at a fixed rate today. Okay. Remember,
five year fixed rate is 2.89%.
The variable rate is 1.65% a difference of 1.24.
Now the rate is important,
but when you're determining what is best for you,
it really comes to two things. Number one,
does your budget allow you to pay the higher payment?
If the prime rate were to go up 1.25%,
okay. You can be conservative and even say, well,
what happens if rates up? If my variable rate goes up 2%,
get your lender or mortgage broker to calculate what that would look like and
see if that's within your budget. If it is in your budget,
then the second question you have to ask yourself is,
will I lose sleep at night? Okay.
because if you can't afford that higher payment or it's
gonna be really stretching your budget and your risk tolerance,
doesn't quite allow you to go that high.
Then it makes sense to go with the fixed,
but if you have the budget and you're not gonna lose sleep at night,
then historically the variable rates usually will in it's
a little bit of a unique environment that we're in today,
just because we're we have such high inflation.
But that is basically what you need you consider.
So it really comes down to your budget and your risk tolerance. Okay.
So hopefully that has helped you guys if you've watch to this point
and you've enjoyed the video, you got some value out of it.
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And and we'll see you in the next video. Okay.
My name is Felix Chan realtor and mortgage broker with the LiveInnerCity real
estate team. And we'll see you in the next video. Cheers.