The fact that there are more questions being created by daily twists and turns in all areas of our lives than there are answers makes it difficult to stick with any decision we make. What we each do is we try to make the best decision we can with the information at hand at that moment in time. And if we left it at that we’d be fine. However, the human brain cannot help but persecute our decisions of yesterday as new information arrives today. If you’re in a variable rate mortgage… congrats, you’ve done well thus far along. Although your brain may now be focusing purely on the rate you could have had, set against the rate it looks like you’re going to wind up with over the coming months.

Keep in mind, rate was only ever part of the decision. That was the small bet not the big one.

The critical factor in deciding whether to opt into a fixed rate mortgage is understanding that 2/3 people break their mortgage early, and when they do, they trigger a penalty that is on average 900% higher than the penalty to break a variable rate mortgage.

Recently a client with a 1.78% 5yr fixed had to break their mortgage, and the penalty amount was just under 8% of the balance. $84,000 on a 1.1M mortgage. Had that individual been variable… the penalty would have been closer to $4,000.00 at the time. Perhaps $6,000 now.

There’s more to a mortgage than rate.

Don’t ask your lender what to do, their answer will be tilted in the shareholders favour, not yours.

Call/Email your Broker.

Discuss prepayment penalty risk. Ask if you’re able to lock into a shorter term fixed rate, perhaps a 2, 3, or even 4 yr as this will give you greater flexibility along with comfort perhaps.

I myself, will stay in my variable rate mortgage.

Full disclosure, I’m on a true variable rate mortgage, not an adjustable rate mortgage, so my payment is static during this little ride – thus my blood pressure remains low as well. However, my strategy regarding debt management, cash flow, and investment planning may vary from your own.

Again, call your Broker and talk it out before you do anything at all.

Mortgage world is littered with people who’ve locked into a fixed rate and then just a few months later triggered a massive prepayment-penalty they’d no idea was coming.

It’s a bit like a street hustle really, many of us get staring too hard at the left hand (rate) while the right hand (penalty) is the one fleecing us.

Talk to your Broker, their focus is on you – not on shareholder returns for the lender.

Cheers!

Pam Woolger, Mortgage Broker, Axiom Mortgage Solutions
www.pamwoolger.com

*Watch for Part 2 in this 3-part series next week!