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Fixed Rate vs Variable Rate Mortgage 2022 - Which is better? - YouTube
Channel: Nolan Matthias
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hey welcome back it's nolan mathias and
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today we are talking fixed versus
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variable rates in 2021
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and at the very end of this video i will
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give you the exact strategy that we're
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using
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and recommending to our clients but
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before we get into it do me that favor
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hit that subscribe button hit that
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notification bell and please
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hit that like button so more people like
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you can see this video and don't forget
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about our race to 10 000 subscribers
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where
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when we hit 10 000 subscribers we're
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gonna pay off one lucky person's monthly
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mortgage or rent payment
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just for subscribing to this channel so
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go ahead hit that subscribe button it's
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totally free and it's totally worth it
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okay so let's get into it let's talk
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about variable versus fixed rate
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mortgages
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in 2021 because the rules have changed
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the game has changed the bank of
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canada's direction has changed
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and that means we need a different
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strategy than we've needed in the past
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and my biggest concern right now is
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people who are taking five-year fixed
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rate mortgages
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and what that means for them five years
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down the road because here's what we
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know
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we know that the bank of canada has said
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unequivocally that interest rates are
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going to remain low
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until at least 2023 which means after
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2023 they expect that they could start
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going up and it may take a little bit
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longer than that
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or they may start going up immediately
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in 2023
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however if you lock into a five-year
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fixed mortgage right now what that means
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that is that in 2026
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you are going to have to renew your
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mortgage and you very well could be
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renewing into higher interest rates
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and to me that is the biggest risk for a
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borrower right now
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in today's market it's not what's
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happening right now today it's what
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could happen
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five years down the road so what we're
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trying to do is make sure that we can
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minimize that risk for people
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and make sure that you aren't finding
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yourself in a position where you have to
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lock into a mortgage
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at a significantly higher rate and
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because you had a five year fixed
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mortgage with a big penalty you have no
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other options but to do so
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because you won't be able to make
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changes between now and 2026
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at least not very easily so in the past
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we've talked about variable versus fixed
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rate mortgages we've talked about
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two things to consider when you're
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getting those mortgages the first is the
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spread between the variable and the
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fixed rate mortgage
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we typically recommend a quarter to a
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half a percent
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difference between those two rates
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before you start considering a variable
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however now we're considering that if
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you can get a variable on a fixed at the
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exact same price knowing that at least
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for the next two years
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you're not going to have to worry about
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interest rates going up well then we
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definitely suggest taking a variable
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the other thing that we've suggested is
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that you consider both your risk
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tolerance and if you're in a
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relationship your spouse is
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risk tolerance when it comes to having a
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mortgage that could increase
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in payments and that has changed
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drastically because now what we're
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talking about is not the risk tolerance
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with respect to interest rates going
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up we're talking about the risk
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tolerance with respect to interest rates
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jumping significantly in five years upon
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renewal
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and what we're doing to try to mitigate
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that potential issue
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is we're putting people in variable
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rates so that their interest rates
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gradually increase
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and therefore they don't have to worry
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about a big payment jump in five years
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what we want to do is we want to do two
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things make sure that we don't renew
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into that higher interest rate
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but also that we are extending the
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amount of time that we can get a low
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interest rate for because
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here's what you know if you get a
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five-year fixed mortgage rate right now
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you know that for the next five years
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you are going to have
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a low rate however you don't know what
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it's going to look like
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after that but with a variable rate
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mortgage right now what we can do
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is take a variable have a low rate for
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the next two to three years and then
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when interest rates start to rise
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then we can start looking at looking at
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options so maybe we lock into a
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five-year fixed at that point in time
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and we extend our rate
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runway from five years to eight to nine
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to ten years by
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using a variable for a short period of
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time and then switching into a fixed and
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therefore getting a
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longer period at low rates or perhaps
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what we do
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is in two or three years when interest
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rates start going up we look at other
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variable rate strategies and see if we
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can lower the rate by getting higher
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discounts and whatnot
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but the main thing here is that we're
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mitigating risk by
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understanding the fact that we pay a
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premium for a five year fixed mortgage
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both on the interest rate and also on
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the penalty down the road
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variable is very much the strategy of
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the day
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since july we have not had a single
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client who hasn't taken a variable rate
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mortgage with us and quite frankly it's
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because they know that they're going to
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be able to
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extend the amount of time that they can
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get a low rate for because the bank of
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canada has said very clearly
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the next two years are basically low
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rates so you get to hold a variable rate
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mortgage for the next two years without
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risk of interest rates going up
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now the other thing that you get to do
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by holding a variable rate mortgage over
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the next two to three years is
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if the discounts increase you have the
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opportunity to refinance your mortgage
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pay a three month interest penalty which
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is usually about one and a half payments
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and get lower rates by taking advantage
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of being able to refinance and switch to
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a different lender now this is where
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product selection comes into play
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because
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you want to make sure that if you're
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taking a variable rate strategy that you
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are steering as far
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clear of discount rates as possible yes
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it might seem tempting to take an ultra
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low variable rate at prime minus 1.5
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percent
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because you think that rates can't get
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any lower but here's the problem the
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problem
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is that when you go to lock in the bank
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basically has control because what comes
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with a discount mortgage
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is often what's called a bona fide sale
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clause or basically a no refinance and a
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no leave to go to a different lender
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clause
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and what that means is that in two to
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three years if you go to lock in your
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variable rates because it is clear that
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interest rates are starting to go up
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well you may not be able to get the best
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rate when you go to lock in because if
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they know that you can't
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leave and go to a different lender what
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is their incentive to give you the best
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rates that are available
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they're either going to tell you hey
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listen you got to write it out and keep
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that variable rate
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we don't care if interest rates are
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going up or you're going to have to take
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a slightly higher fixed rate than what
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we might otherwise offer you
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quite frankly because you don't have the
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ability to leave and you have no other
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options
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so making sure that we get the right
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product for this variable rate strategy
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and for variable rates going forward is
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hugely important
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and there's two that i suggest the two
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that i suggest are scotiabank and first
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national
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the reason why and you can see this in
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our other videos about the best banks in
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canada to get a mortgage
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is quite simply that they have the best
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mortgage products and what i like about
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first national and scotiabank is that
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one first national only carries one set
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of rates it's the best rates
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so if you go to lock it in you're paying
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whatever the market rate is not some
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inflated rate
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because you can't leave the lender or
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because they want you to negotiate
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and if you take a scotiabank mortgage it
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has all the tools all the bells and
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whistles
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but also the ability to pay that
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three-month interest penalty and
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leave if they don't offer you a good
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lock-in rate and what that gives you is
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that gives you
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the power to negotiate and as soon as
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you take a discount mortgage
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you're losing your power to negotiate
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after you've signed on the dotted line
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but having a scotia bank or a first
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national mortgage that isn't a discount
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rate
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really gives you the power to do things
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in the future that will save you a
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pretty significant amount of money
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including refinancing to a lower rate if
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variable rate discounts get better now a
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lot of people are going to watch this
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video and they're going to say hey
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i can do this i can manage this myself
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i'm going to go ahead and get a variable
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rate mortgage
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not going to call nolan i'm not going to
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do it through mortgage 360 or a mortgage
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broker because i think i can manage this
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on my own
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and some of you may be right but the
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majority of you
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are going to want to have somebody to
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manage this strategy for you from two
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perspectives one
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is there's going to be points where
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there is going to be a temptation to
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want to lock in a mortgage rate because
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it looks like fixed rates are going up
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but other rates are staying the same
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and you're going to want to have
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somebody who can talk you off that ledge
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if you're thinking about locking in at
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the wrong time and believe me
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we do that quite often with our variable
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rate clients in the last two years i've
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had several clients that wanted to lock
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in
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at 2.75 or 3 percent and they are very
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happy that i convinced them not to lock
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in their variable rate mortgages now
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because they've saved a significant
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amount of money the second reason you're
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going to want to have a mortgage broker
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manage this strategy for you
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specifically a mortgage brokerage like
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ours
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is because we watch what's happening
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with interest rates and we can usually
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tell
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two to three to 10 days before interest
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rates start to go up that they're
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actually going to go up
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which means that we can let you know
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before interest rates go up that they're
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going to go up and then we can talk
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strategy from there we can talk about
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taking a five-year fixed or we can talk
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about refinancing into a lower interest
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rate or in general we can just talk
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about the amount of money that we've
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saved over the long term with respect to
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taking a variable instead of a fixed
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and then consider whether we want to
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actually lock into a fix
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and basically lock in the savings now i
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firmly believe that mortgages are like
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any other form of financial device you
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want to make sure you have an expert you
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can rely on to help walk you through
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the difficult decision-making process
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that is ahead because taking a mortgage
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that is on a variable rate strategy
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definitely requires
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more management than just taking a
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five-year fixed and forgetting it
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however that being said the ability and
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the potential to save a significant
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amount of money over time
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is definitely there with a variable rate
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mortgage right now
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and let me make this clear as well is
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anybody can save you
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point one percent point two percent we
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see brand new brokers coming out of the
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industry
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saving people money and that's awesome
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we see bankers saving 0.1 or 0.2
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all the time for their clients however
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managing a strategy and saving tens of
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thousands of dollars
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requires significantly more
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sophistication and significantly more
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effort and that's what a really great
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broker will provide you is the ability
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to save you money over time
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and just that ability to extend your
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rate runway from
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five years to eight nine ten years at
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low rates
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is worth every penny when it comes to
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getting a great broker
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and getting a great mortgage like the
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ones that we promote at first national
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and scotiabank and that being said this
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mortgage channel is made possible by
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our mortgage brokerage mortgage 360 and
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i hope that you would at least consider
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giving mortgage 360 the opportunity
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to set up and manage this strategy for
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you we belong to a network of brokers
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that can help you get a mortgage across
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canada
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ourselves we are licensed in both
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alberta
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and saskatchewan and are just in the
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process of finishing up our bc in
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ontario licenses
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so we very much can help people across
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the country mortgages
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these days thanks to kovid are very much
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done over
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online and over the phone so we are
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happy to help you in any way that we can
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and in addition to considering mortgage
[599]
360 for your mortgage i'd also
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love it if you did us that other favor
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and hit that subscribe button and the
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notification bell and please
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hit that like button so more people like
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you can see this video as of this
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recording we are now
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just under 2 000 subscribers i fully
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suspect
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that we'll be at 10 000 subscribers by
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june the amount
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of viewers and the amount of people that
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are commenting is through the roof
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i'm so happy that we built this little
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community of people who are getting
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educated on mortgages and personal
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finance and
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don't forget about our race to 10 000
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subscribers because
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one of you is going to win your monthly
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mortgage or
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rent payment for a month just by hitting
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that subscribe button
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so please do me that favor hit that
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subscribe button and we'll see you on
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the very next video cheers
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you
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