Fixed vs. Variable: Which Mortgage Should You Get in 2016?

With home prices in Toronto and Vancouver seemingly going up thousands of dollars per month, many Canadian buyers are desperately seeking to buy houses, worried the market will zoom by and they’ll be stuck renting forever.

Meanwhile, millions of current home owners are faced with a dilemma. With mortgage rates at record lows, they’re tempted to lock in today’s enticing rates for the next five years. But variable rates are still cheaper than fixed, and interest rates don’t look like they’ll increase anytime soon, at least here in Canada.

So there are compelling arguments for homeowners to choose both fixed-rate or variable-rate mortgages. Here’s how these folks can figure out which is best for them.

Other factors to consider

The first thing mortgage holders should consider is their overall financial situation.

Choosing a variable rate will save money over the short-term, there’s no doubt about that. But those savings come with a healthy amount of uncertainty. What if rates shoot up and the payment goes higher?

Lenders have helped protect against that, introducing variable mortgages that keep the payment the same no matter what interest rates do over a five-year term. The kicker is this product is generally only available to people who can afford a hike in interest rates.

Increasingly, people are opting for variable rates because they barely qualify for a mortgage. They’ll gladly exchange the risk of higher rates in the future for lower payments today because a smaller payment is a very big deal to them right now.

These people probably shouldn’t be in variable rate loans to begin with. If you’re one of them, I’d suggest a fixed-rate mortgage. Yes, it’ll cost more day one, but at least there’s no risk of the payment going up. Or, better yet, these folks should be in a variable rate mortgage with payment protection.

What about folks who can afford whatever?

For most people, the fixed vs. variable debate comes down to one factor.

What is the insurance of having a steady rate worth to them?

These days, the spread between five-year fixed and variable rates is approximately 0.5% annually. Some mortgage brokers are offering lower fixed rates, but the 0.5% seems to be about the average.

Over the five year term of a mortgage worth $300,000, choosing the fixed option is worth about $7,500 more in interest compared to the variable option–assuming rates stay constant throughout. We’ve seen variable rates fall in Canada over the last two years. If the trend continues, the difference between the two types of loans gets even bigger over the span of the next five years.

In exchange for taking on this risk, folks get protection in case rates to start to creep higher. Although that might seem unlikely at this point, a lot can happen over the next handful of years. People who got a mortgage in 2004 renewed in 2009. The world had completely changed in those five years.

Ultimately, insurance costs money. If doesn’t matter if that insurance is for a house, vehicle, or on your life. Getting a fixed-rate mortgage is a form of insurance, and that always has a cost associated with it.

Remember, not all mortgages are five years

Not everybody should be in a five-year mortgage.

The big group that shouldn’t are those who are thinking of moving relatively soon. Payout penalties are highest for longer loans. If moving is something that’s crossed your mind, stick with terms of three years or less.

Shorter terms can also serve as a nice hybrid between fixed and variable rates. The cost of a three-year mortgage usually ends up about midway between the cost of a five-year variable and a five-year fixed rate. This can be a nice compromise between the two.

Ultimately, going with a pure variable mortgage will likely save you money, like it has for the last decade. But with rates at all-time lows, it’s easy to say locking in isn’t the worst idea in the world. Personally I’d go with variable over fixed, but still can’t really fault anyone who chooses to pay a little more for the insurance of a fixed rate.

Reinforcing Structural Stability of your Properties

“There is no one-size-fits-all solution to the challenges facing our cities or to the housing crisis, but the two issues need to be considered together. From an urban design and planning point of view, the well-connected open city is a powerful paradigm and an engine for integration and inclusivity.” –Richard Rogers. However, a well-planned city starts with structural stability of our own properties first. Structural stability usually refers to the strength and durability of the “skeleton.” This skeleton includes all the walls, beams, pillars and foundations that is responsible of weight bearing. They should be looked thoroughly because taken for granted issues can lead to irreparable damages. Thus, planning to improve your home’s structure will save time and frustration in the long run.

To start with, ensure that foundations are waterproof. Apparent leaks can ruin the entire home’s structural stability. With that being said, one can use rubberized polymer spray membrane which is cost-effective and performance-proven. In addition, look out for pests and termites that can also inflict damages to the foundation. Maintaining or digging drains is also important in structural stability. A good quality drain strengthens the structure by directing the water away. Lastly, checking the roof of your properties especially after thunderstorms should be a habit. If you shingled roof, it is recommended to replace it with a metallic one.

In a commercial setting, the roof is also of prime importance because it works as a protection from natural calamities such as blizzards, fires, hail, and even earthquake. The roof is always exposed to changing weather and other elements that may be instrumental to deterioration. Having a roof that ensures optimum protection starts with design, materials selection, and installation at the time a facility, building or home is built or remodeled. In line with this, you may consider a guardrail freestanding system that has proven counterbalance design to achieve exceptional stability on all roof surfaces. Nevertheless, regular inspection, maintenance and repair should be part of one’s operational planning to prolong the roof’s life.

SIGNS THERE IS A ROOF PROBLEM

Signs of roof problems include water stains on ceilings, which may be due to a crack in the roof. It is important to take note that even small leaks can indicate big trouble in the future. If the facility also has unexplained mold or odors, it is also an indication of a roof leak. Also, over time the plastic domed panels can become brittle and very susceptible to cracks.

CARE AND MAINTENANCE TIPS

Proper maintenance is designed to prolong roof life. The frequency of ocular inspections for maintenance routine really depends on several factors such as age of the building, weather changes, foot traffic and the roof materials. A normal ocular inspection is done every six (6) months to effectively combat roof decay while not hampering regular operations that much.

However, after a severe windstorm or hurricane, immediately inspect your roof for damage, as to ensure roof strength. It does not mean that if a roof survived a storm, it is sturdy enough to survive the next coming storms after that. Moreover, remove any accumulated debris. Moisture of this debris can speed up roof decay as well. A clean roof also reduces risk of roof igniting during fires. Keep trees away from roofs as well to prevent branches from touching the roof.  

Furthermore, consulting a professional roofing contractor is helpful if you have concerns regarding maintenance review. The contractor can also help to determine the overall condition of the roof and estimate the life span of it. In hiring the roofing contractor, make sure to ask to see certificates of insurances and licenses are up-to-date. Also, discuss, verify the warranty information. This will make it easier for you to track future inspections, maintenance, and repairs.

Remember that a little but consistent maintenance can result in a lot of savings, especially when compared to the cost of damage from a small, undetected leak that can lead to catastrophic roof or building failure.