Fixed vs Variable rates - how to decide?

Clients often ask this question.  Historically variable rates have outperformed fixed rates to the advantage of the client.  There is some logic to this because the client is the one taking the risk of future rate increases compared to the lender. 

If you are a person who would prefer to know exactly what your monthly payment will be, then you would likely be better off with a fixed rate.  Fixed rates are most often recommended for First Time Home Buyers because it is one less thing to worry about.  On the other hand, if you are comfortable with some fluidity to your payments then perhaps a variable rate is more appropriate for you.
 
The current Covid crisis presents a unique position for whether a fixed rate or a variable rate is better.  Most economists are forecasting that it is highly unlikely the Bank of Canada will raise the Key Interest Rate in the next 12 months, with others arguing it could be as long as 24 months. The logic is that the economy will take about that long to recover and the Bank of Canada won't want to do anything to hamper the recovery.  With this in mind, if you can get a variable rate mortgage for 2.45% (as opposed to a 2.84% fixed rate) then you would be saving yourself almost 40 bps in interest for the near future.
 
Prime rates (and as such the effective variable rate) will eventually rise.  And when they do, they usually do so in increments of 25 bps - so the big savings you thought you had can be wiped out pretty quickly.  Potentially you can convert your mortgage from a variable rate to a fixed rate with the same lender with no penalty.  Many lenders (but not all) allow this benefit.  So if you do want this "out" make sure you check to see if your lender does allow it.
 
Keep in mind that many economists are forecasting that lenders will continue to reduce their fixed rates, so some clients are proceeding with a variable rate mortgage in the short term and then will convert to a fixed interest rate in another 6-8 months once they feel the fixed rate is a good rate for them.

If you have questions about your mortgage, feel free to reach out and I'd be happy to put you in contact with a Mortgage Broker to discuss your options at no cost or obligation to you.  


 
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What is the Home Renovation Tax Credit (HRTC) & How Can I take Advantage of It?

March 13th, 2009

The Home Renovation Tax Credit (HRTC)

·         Implemented in the 2009 Federal Government Budget

·         Is a non-refundable tax credit for work performed or goods acquired in respect to an Eligible dwelling?

·         An Eligible Dwelling is one’s principal residence, a cottage or summer home occupied personally.

·         A property you own that family members reside in during the time period from January 27th, 2009 to February 1st, 2010. 

·         Eligibility is family based.  A family is an individual and his/her spouse/common law partner including children less than 18 years of age by the end of 2009.

·         If 2 or more families own and occupy the same residence, then both families will be eligible for their own separate tax credit.

·         Eligible expenses must fall between $1,000 and $10,000.  The maximum tax credit is $1,350 (15% of $9,000).

·         The Tax Credit is ONLY for the 2009 Taxation year. 

 

What Qualifies as an Eligible Expense?

 

·         Expenses incurred with respect to a renovation must be of an enduring nature and integral to the home.

·         This includes cost of labor, professional services, building materials, fixtures, rentals and permits.

·         You MUST have documentation to prove this.  Agreements, Contracts, Invoices, or Receipts.

·         The type and quantity of goods purchased or services received must be listed.

·         The Contractor’s name, business address, gst/hst registration number as well as the address where the work was performed must be on the Documentation. 

·         Proof of Payment must be noted as well.

 

Eligible Expenses:

 

·         Renovations to a Kitchen, Bathroom or Basement.  *(appliances are not eligible nor is renovations to a tenanted basement suite in your principal residence)*

·         New Carpets or Hardwood Flooring.

·         Building of an addition, garage, deck, shed or fence.

·         Painting of the exterior and interior of your homeRe-shingling of a roof.

·         A new furnace, woodstove, boiler or water heater.

·         A new driveway or the re-surfacing of an existing one. 

·         Laying of new sod.

·         Swimming pools both in ground and above.

·         Costs of permits, equipment rentals and incidental expenses related to the renovation.

·         *If you own a condo and a special levy is approved for the upgrading of a Common Area and a special assessment is passed for this levy, you would be eligible for a tax credit based on your unit entitlement.*  Please check with your Strata Management Company, Accountant and Lawyer for specifics. 

·         Expenses are not eligible if the work performed or the goods acquired are provided by a person not dealing at arm’s length. For example, if your brother-in-law helps you re-shingle your roof and is not registered with gst/hst and you pay him in cash or cheque, then you can’t claim the expenses.

·         Renovations that qualify for the Medical Expense Tax Credit (METC) is an eligible expense and one can claim both the (HRTC) & (METC).

·         Eligible expenses will not be reduced by other qualifying Government grants or Tax Credits.

 

Please note that the above information is just a guideline and for complete details or information, please contact the CRA Canada Revenue Agency, www.cra-arc.gc.ca or speak to your Accountant prior to renovating. 

 

If you or anyone you know are thinking about Selling and wish to renovate prior to doing so, please call me for a no obligation consultation of which renovations will increase the property’s value more than others. Also, should you hear of anyone thinking of buying or selling real estate, please keep me in mind as I am never too busy for any of your referrals!

 

Regards,

 

 

 

Robert Britch

www.robbritch.com

www.vancouverbcrealestate.ca

Email:  robbritch@telus.net

Tel:  604-240-5813

Quality Service since 1993!

                                                   

 

 

Not intended to Solicit Properties Already Listed for Sale.

 

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