Brokers debate fixed vs. variable

Brokers debate fixed vs. variable

Brokers debate fixed vs. variable While some brokers prefer one over the other, it's often best to evaluate on a client-by-client basis, says one player.

"This is not universal truth that variable rate mortgage is better than fixed rate mortgage," Kuldip Panesar of Homeland Mortgage Corp. wrote on MortgageBrokerNews.ca. "Which product is suitable for the clients that depends on each and every economic situation of the client."

The message from several brokers is that variable rates still reign supreme, however, following a story about one financial professional’s personal mortgage blunder.

“From what I analyze daily, low rates will be with us for a long time,” Brian Lambert of Real Mortgage Associates wrote on MortgageBrokerNews.ca. “Even if they rise, it would be only marginally as governments would have to allow time to see what effects that would cause any economy.”

The comment was in response to a story about a financial planner who switched his mortgage from a variable to a fixed rate.

Ted Rechtshaffen -- president of TriDelta Financial -- speaking to the Financial Post, admitted that in 2009 he switched his variable rate mortgage to a fixed, after heeding warnings that variable rates would be on the rise. And that the move was a mistake.

“I was wrong. I had a variable rate mortgage and in 2009 I pulled the plug and went fixed,” Rechtshaffen, financial planner and president of TriDelta Financial told the Post. “I did mess up, but my question was what benefit do I get locking-in versus going variable?”

It seems brokers will be advising their clients to avoid the same mistake – despite any posturing from the big banks.

“As mortgage professionals we listen to a lot of noise coming from the media and big banks. You really need to read between the lines,” Lambert wrote. “Big banks agenda is to scare clients into locking in to a fixed rate, this secures their profit over a fixed term. The media just churns the message as it makes for news.”

Related:
Financial professional admits he was wrong about mortgage choice
9 Comments
  • Angela Wong-Liao - Invis 2014-10-30 12:26:04 PM
    "Variable rate or fixed rate" I am always asked by clients. I believe the decision is based on each client's individual needs and situations, we cannot use the ONE SIZE FITS ALL approach. For example, a young couple with two young kids who are first time home buyers with fixed income and 5% down payment, it can be risky if they chose variable rate mortgage as they have limited equity and no flexibility in income. This young couple simply cannot afford any variance in interest rate plus they can qualify substantially less in mortgage amount should they chose variable rate because of the qualifying rate that use for variable rate mortgage product.
    On the contrary, if a couple with good job stability, flexible income and conventional mortgage, variable rate mortgage product is best suitable to them as they can afford the interest rate variances and possibly some interest savings in comparing to fixed rate mortgage product.
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  • Jivan Sanghera 2014-10-30 12:56:12 PM
    If a client qualifies for a Variable rate, I educate them to the benefits and potential downfalls of the product. But more than 9 out of 10 of my clients are in a variable rate mortgage. With a spread of approx. 70 points today I can't see the logic for presenting a case that the fixed at 2.99 will out perform the variable. There is no upwards pressure on prime that I can see. And no pressure presenting itself in the short term. As such especially with the convertibility options, it seems like the right product to me.
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  • abe 2014-10-30 2:57:39 PM
    If a client qualifies for a high ratio mtg @ the BOC rate, they have all the other mtg options as well, i.e. short terms and low rates.
    If you watch your rate sheets some lenders have some low rates on the 2 and 3 year terms.
    You’re right, a young family with 5% down payment on a fixed income and 2 kids, it would be tough on them if rates went up. However, they qualified for the variable rate and can afford the higher payment.
    If you want stability in payments take a short term, but make the payments based on the 5 year term rate (which they said they can make anyway) and at the end of term they have opportunity to see which way the rates are going at that time. and lock in short term again or take a longer term, or sell the property NO penalty.
    (This program was outlined to me by a TD bank manager in 2002, she said she never went longer then 1 or 2 years as the rates were, at least, in her case, .75% lower then the 5 year term)
    Why do we not set a plan like this up, because we get paid more for 5 year terms.
    Good for the client, bad for the broker/banker
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