A recent Edmonton Journal story says that choosing a fixed-rate mortgage was one of the author’s worst mistakes. This is an old debate that will keep going for a long time, but suggesting that variable rates are best for every situation is going too far.

If interest rates are over 10% there’s no question that you want to follow them down, especially when you’re looking at a longer term. But when they’re at 3-5%, it’s pretty easy to guess the chances that they’ll drop by 6%.

Most people are bad at predicting economic trends and don’t know how bad they are, but everyone can believe that rates won’t go below 0%. If they’re very low by historical standards, it might be worth staying at that level for 5-10 years instead of risking a large increase for some small potential savings. At this point there’s probably more room for decreases in Canada than in the US, but with every rate cut the possibility of seeing a variable rate go down by half or three quarters decreases. I always like buying insurance when it’s cheap!

Of course there’s also risk tolerance (which is almost too obvious to mention). There was a time recently when I considered a fixed rate mortgage because I wouldn’t want to see the payments increasing. Fortunately that didn’t go through, and by the time I face the choice again I’ll have a much higher risk tolerance. Anyone who’s close to the limits of what they can afford should avoid variable rates even if it could save them a bit of money.

What would make you consider a fixed rate mortgage over a variable rate? Does anyone think interest rates will decrease for the next 5 years?