Are variable-rate mortgages still the best bet?

Scott Westlake
Founder
The Westlake Team, DLC National

“Two important considerations when selecting variable versus fixed are penalty exposure and interest rate exposure. Variable mortgages have a predictable penalty rather than the more complicated calculation of fixed mortgages. Many lenders and brokers don’t explain the penalty sufficiently for clients to gauge suitability. Many clients believe they will stay in the home and mortgage product for the full length of the term, but statistically we know that’s unlikely.

As for interest rate exposure, clients selecting a variable rate can withstand increases while still benefiting from a lower rate. Clients also have the option to convert to a fixed product.”

Michael Jones
Mortgage broker
Centum Core Financial

“Variable-rate mortgages have many positives – the main one is that the penalty to discharge at most lenders is only three months’ interest, whereas the penalty to get out of a fixed-rate mortgage can be much higher, depending on various factors.

However, I like to know the client’s details before determining the best option. If they are struggling with affordability, a variable-rate product could be dangerous, as even a small rate change can have a significant impact.

Overall, I believe the fixed versus variable debate should be determined in reference to the individual client.”

D’Arcy Henneberry
President
MortgagePal

“The answer is as unique as each client’s individual needs. Homeowners tend to focus on the lowest rate when choosing their mortgage; however, as professionals, we must help clients understand the risk/reward between variable and fixed terms and present the payment/interest spread, along with all other benefits and disadvantages, to help clients make informed decisions.

 The fixed-rate spread can be seen as insurance against the change in payments that can occur with most variable terms. With a VRM, payments can be set at the higher fixed payment to protect against increasing rates. VRMs also provide lower penalty risk compared to fixed mortgages.”