Fixed or Variable Rate Mortgage?

How about both?

According to the annual RBC Homeowners Survey released this week, 40 percent of people surveyed who are planning on buying a home in the next two years would opt for a combination mortgage. This is a stark rise above the 32 percent who chose this option last year.

Not surprisingly, 16 percent of those surveyed say they would opt for a variable rate mortgage in 2010 down from 20 percent in 2009.

Fixed rate mortgages are guaranteed not to rise during the agreed mortgage term. They provide a feeling of security to Canadians who want predictable monthly payments and protection from rising interest rates. Today’s variable rate mortgages also have fixed payment options; however, the amount applied to the loan principal changes depending on interest rates: as rates rise, more of the monthly payment goes toward interest rather than the loan principal. The majority of Canadian homebuyers tend to shy away from these mortgages, but those who have opted for this route historically have tended to pay down their loans more quickly. A combination mortgage is part fixed, part variable.

It’s hard to avoid news reports suggesting that we’re entering a phase of interest rate growth. This likely explains why even more Canadians surveyed are considering combination and fixed mortgages now compared to a year ago.

Regional and Gender Differences

Fixed rate mortgages continue to be preferred by 44 percent of Canadians. Those living in Atlantic Canada are most likely to opt for fixed rates, while Ontarians are least likely to do so. Men are more likely than women to opt for variable rates, while the opposite is true for fixed rate mortgages. More women than men would opt for a combination mortgage.

What’s in it for the Banks?

Should you go fixed, variable, or choose a combination mortgage? With interest rates at an all time low, the wisdom promoting variable rates may not be as sound today as in the past.

According to one mortgage broker’s interpretation of the RBC Homeowners Survey on, banks may be the real winners in combination mortgages. Read what that broker had to say and share your viewpoint.

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