Patricia Lovett-Reid, senior vice-president at TD Waterhouse, has recently posted an article at the Financial post aptly titled “It may burst your bubble, but buy within your means“, in which she elaborates on the “importance of putting things into perspective” when assessing the “housing bubble”, using as an example her own daughter’s financial dilemmas.

The perspective she refers to comes from some statistical data, such as:

• Home prices across the country have grown at an average annual pace of 4.7% over the past 22 years, or just 2.4% per year above inflation.
• Residential home prices in places like the Greater Vancouver Area have appreciated by 54% over the past five years, over 9% a year compounded.
• In comparison, the average selling price in the Greater Toronto Area has risen at a compound rate of 5.2% per year over the same period.

Plus some added forecasts such as:

• After a 9% appreciation in average existing home prices in Canada in 2010, we could see a dip of 2.7% in 2011.
• Expect the Bank of Canada to raise rates from the current 0.5% to 1.5% by the end of 2010 and to 3% by 2011.
• An increase of variable mortgage rates along the way.

As she points out, today you can get a five-year fixed rate mortgage for approximately 4.6% (4.19% with the Mortgage Girl), and the closed five-year variable rate mortgage is approximately 2.35%.

Which leads us to the omnipresent question fixed or variable?

Her conclusions are as follows:

1. The more stable your job, the higher the amount of equity in your home, the greater your financial liquidity and risk tolerance, the more suitable a variable mortgage may be for you.
2. On the other hand, fixed rate mortgages offer you the peace of mind of a set rate and a predetermined amortization schedule. If you don’t like risk, then a fixed rate mortgage is for you.

Her final advice to her daughter: “Buy within your means because it is not worth the sleepless nights.”

But wait, there’s a third way that allows you to have the best of both worlds!.

Because you can actually take both! Look at the Mortgage Girl’s 50/50 Wise Mortgage product!

With this kind of Mortgage you are allowed to split your loan amount between fixed interest and variable interest rates. This means that regardless of the economic situation your loan will be partially suited to the economic circumstances.

Call now 1-866-932-8412 or e-mail: info@mortgagegirl.ca for more information.

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Tags: Fixed, housing bubble, Variable