Ryan here with City Wide Financial, talking about what is an adjustable rate mortgage strategy. This is one of the more common questions we’re asked – fixed or variable, which is better?
If you are asking yourself this question, a strategy I encourage you to think about is taking an adjustable rate, but fixing your payments at what they would be at the higher, fixed rate level. If you’re considering taking a fixed rate, you can obviously handle that payment, so why not fix your payment at that level & pay down boatloads of principle while the variable rate is so low.
A good variable rate is around 2.25%, about 2% below today’s best fixed rates. On a $300,000 mortgage over 30 years, your variable rate payment is over $300 lower than the fixed payment. So if you take the variable rate & fix your payments at the fixed rate level, in year 1 you’ll pay down $4000 in more principle than you would normally.
Now, of course, the variable rate fluctuates & as it increases, the savings won’t be as significant but my goal here is to illustrate the kind of savings you’ll see. Also, eventually that fixed payment likely won’t be enough to cover your variable payment, so at that time you’ll need to fine tune your strategy, but that is why you need someone committed to managing this mortgage for you. Taking a variable rate opens your mortgage up to a lot more risk & anyone thinking of taking a variable rate with their bank is crazy because they do nothing to manage your mortgage over the term.
A lot can happen in 5 years time, particularly in the mortgage world, is money, so it’s important to have someone advising you throughout the life of your mortgage, making sure you’re saving as much money as possible.
If you’d like to hear about more of my mortgage strategies, or to see how much you can save by taking the adjustable rate strategy, contact Ryan at City Wide Financial.