Fixed or variable mortgage?

You may remember my mortgage related post (‘Mortgage term decision: 1, 3, 5, or 7 years?‘) where I mention that I prefer short term rates due to the savings since you have a lower rate. Don Campbell goes further and mentions that you should stay variable! Doesn’t this challenge what everyone does when interest rates go up? When you look at the strategy he proposes, it makes a lot of sense.

Basically, he recommends that you keep your variable rate and simulate a rate increase as if you would switch to a fixed rate by increasing your payment. The result is that you are paying yourself first and decreasing your principal faster. If you were to switch to a fixed rate, your payment would increased the same unless you increased the amortization of your mortgage. The benefits are significant because the increase on your payments have a compounding effect in interest reduction and provides you with an accelerated payment on your mortgage.

There is even a comment on the fact that variable rates have always beaten the fixed rate during the clip. This is something I have been curious about. If you look at the historical rates on CanEquity, you can see the difference between the variable and fixed rates.

Some food for thought!