After returning from the Canadian Association of Accredited Mortgage Professionals (CAAMP) conference in Montreal last week, I'm on the fence about recommending a fixed- versus a variable-rate mortgage (VRM). Benjamin Tal of CIBC World Markets notes that over the next five years the savings of a VRM won't be as great compared to a fixed-rate mortgage. How do you determine what's the right mortgage for your financial situation? I believe it comes down to two criteria, here they are:
1. Are you choosing a variable rate mortgage now because of the low monthly payment? If this is the case than a VRM is not the right choice. The main reason to choose a VRM is that over the next two years you want to accelerate the payments on the mortgage and pay down as much principal as possible. Because the prime rate is low and will continue to be until likely the end of 2012, now is your chance to pay down your mortgage.
2. Are you nervous about interest rate fluctuations? If you're nervous about rates or don't have the time to follow what's happening with interest rates, a nice low three- or five-year fixed rate mortgage is always a good option.
