When you read the mortgage rates regularly, you may know what the tensions are for the home mortgages in Canada this year. Even though fixed rates used to be tempting for the homeowners, it seems like the variable rates loans are more popular for the average investor.
That happens because many people who build their estate would see their home as a financial vehicle and investment to give them high liquidity and prosperity when needed. Today we will examine the case of the variable rates mortgages and how they have influenced the Canadian market. It’s true that many people buy a home to have a place to live for themselves and their families. But as real estate has been one of the most profitable businesses in Canada, we have seen many investors buying homes and renting them for all the time it takes them to sell them to another investor and collect their earnings.
Let’s see what variable-rate mortgages can do for the Canadian economy and how they can drive the market prices of homes in the region.
Variable Rates Are Good When The Economy Grows
We all know that variable rates follow the overnight interest rate of the Canadian dollar that is dictated and controlled by the Canadian Central Bank in Ottawa. You will see that the policymakers there have a lot of work to do when they need to increase or decrease the rates for a certain period. They need to know what the impact would be on the inflation and how the home prices could be kept to the lowest possible levels to avoid another painful real estate market bubble.
People Believe that Variable Rate Mortgages Are Better
There is a conception that variable rates are better for long-term mortgages, especially when we are talking about younger home owners. These variable rates give you the chance to alter your investment in your house or even forfeit some of your equity to the bank when the monthly payments become unbearable. That’s why people always like the variable rates better since they have more options to rent or sell their home and take advantage of the financial situation that is present in the country at the time of decision.
Loans With Variable Rates Give More Incentives to Investors
As an investor, you have many incentives to buy a home using a variable rate mortgage than a fixed one. Since most of the time, the Canadian government can easily keep the interest rates lower than other parts of the world and control the money supply, you are better protecting your property with variable interest rate mortgages. That way, you can reduce the monthly payment when the economy thrives and, at the same time, rent your home when the interest rates go up or sell part of the home to the bank to have an extra shield against inflation.
You Can Still Back Your Home Loan When Going Variable
Who told you that you could not have an asset backing your variable rate mortgage? Today most commercial banks accept your home as collateral when applying for a variable interest rate loan. It’s the most secure way to have a loan like that and the one that allows you to feel more free and secure every time you build equity to your home. Asset-backed loans are better for the banks since they can minimize risks and risky exposures to their balance sheet and show their creditors that they are credible and responsible with the money they have as a deposit.
There Is a Great Ambiguity For Payments With Variable Rates
One of the biggest drawbacks of variable rates mortgages for ordinary people would be the ambiguity of the monthly payment, especially when the inflation (and interest rates) go up. People don’t really like to have a mortgage, and they don’t know what the monthly payment could be in several years. That’s why variable rates are for more sophisticated investors who have a large real estate portfolio and would never hurt them to have a loss from the interest rates they pay for their homes. Variable-rate mortgages remain the main moving power for the economy.
