Variable (p-1.3) with cash back or fixed (2.84) no cash back

[jmhagman]

Looking for opinions on the following 2 options (approved for both a few months back), close on the new house at the end of may

principal balance will be 1.728M in GTA, 5 year term

1) Variable, P - 1.3% - currently 2.05%, $13,000 in cash back (broker + bank offer)

2) Fixed, 2.84%, no cash back

We have proceeds from sale so can make lump sum or increase payments if things get crazy, but im hearing different opinions on the fixed we have locked in,

wondering what your thought process would be

 

[resjudicata]

@jmhagman What are your pre-payment privileges on the Variable vs. Fixed?

Could you use a Mortgage Amortization Calculator to determine what the monthly payment would be if you took the Fixed Rate @ 2.84%; accept the Variable Rate Offer with the $13,000 cashback; and then immediately increase your regular payments to match what it would have been if you took the Fixed Rate?

It sounds like you could afford to.

The spread is currently 79 basis points. Increasing the regular payment on the Variable Rate to match the Fixed Rate payment reduces your principal balance and reduces your interest cost.

 

[jmhagman]

@resjudicata 15% on variable , 20% on fixed

 

[resjudicata]

@jmhagman I would say take the Variable w/the Cashback; but increase your Monthly Payment to what it would have been if you took the Fixed (because you can afford to).

If the Variable Rate at some point becomes equal or greater than 2.84%, then make lump sum payments toward your Mortgage, which will reduce your cost of borrowing.