What's a better deal, fixed or variable? Learn more here!

Summary

James Loewen, in 'Smarter, Not Harder', dives into the fixed versus variable mortgage debate, highlighting the less-discussed risk of penalties. Unravel the misconception that a fixed-rate mortgage is risk-free, and discover the potential costs of breaking your mortgage. Join us to make well-informed decisions and work smarter with your finances.

Transcript

James Loewen:

Hey, guys. Thanks so much for joining me. Today we're going to be talking about the age-old debate, fixed versus variable on your mortgage.

All right, well, I'm James Loewen. Let's get going. We're going to get you working smarter, not harder.

All right, let's get going on this and let's talk about risk. Let's talk about the risk of a fixed-rate mortgage. I know you're probably thinking, "No, no, no, James. Risk is on the variable. Fixed is the one that has no risk." Wrong, and that's what I really want to focus on this conversation here that the risk that no one's really talking about and that's penalty risk.

You're making a judgment in our gamble without even realizing it that you're betting your mortgage is going to stay unchanged in for the full five years. Unfortunately, statistically speaking, which is difficult currently for me to do, you are apt to refinance, break your mortgage, move, die, divorce, unthinkable things that could happen. And if you do that, you might actually be breaking your mortgage at a much higher fee.

On a variable, three months' interest. Simple calculation. For a average mortgage, you're talking about 3-ish thousand dollars. On a fixed-rate side, it's probably going to be about five to eight times higher, so you're talking closer to $20,000. We've seen breakage fees as high as $50,000.

So let's remove all the minutiae around interest rates and movements like that. I want you to focus and realize that it's not necessarily the case just because you're fixed, you've avoided any risks.

Thanks so much for joining me, guys. Hope you've enjoyed this conversation on risks and breakage costs, and if you liked this video, of course, subscribe. And on the next one, we're going to continue this conversation on variable mortgages with a great debate. Should I lock in, i.e. should I convert from a variable to a fixed rate?

Thanks very much for joining. I'm James Loewen and let's get going on making you work smarter, not harder.