Is a variable mortgage rate still the way to go?
How come everyone wants a piece of my pie and I can’t ever seem to get a piece of theirs? I’m sure plenty of us feel that way. Years ago I knew a girl who moved to northern British Columbia with her boyfriend. Nature freaks – both of them! (Good thing too, or they might not have survived!) Now I’m not talking northern B.C. like Prince George or Prince Rupert, but Atlin. And not even Atlin, they lived way outside of Atlin, just south of the Yukon border…..in a TEEPEE!! They bathed in a hot spring and got a great deal of food from the local indians!! Now if that is the way to keep a piece of your own pie, then I say, “You can have my pie”!
There is a better way. At 1.85%, a variable-rate product today may look as attractive as ever, but the five-year fixed-rate closed mortgage is falling fast. Brad Vokins, Mobile Mortgage Specialist with RBC Royal Bank is quoting a five-year-fixed-rate at 3.64%. What if the banks reduce the long-term rates even more!
In the past variable rate mortgages have benefited the consumer far better than fixed-rate mortgages, but the time may be turning. the central bank has raised rates a couple of times now and will likely continue to raise rates. No one expects that the next five years will follow the past five years, so you may be able to argue that it is a good idea to lock in now.
Bank of Montreal is forecasting another 25 basis point move in September and says rates will climb another 1.5 percentage points by the end of 2011. If this is correct, by 2012, the variable-rate products out today would come in at just above 3.75%, if the discounting remains the same. And some banks are forcasting that the variable-rate product you can get today will end up at 6% by 2015. Fears of such a scenario are driving people into fixed-rate products again. That, plus new mortgage rules that make it easier to qualify for a mortgage if you go for a fixed-rate product with a term of five years or longer.
The Bank of Canada is doing what it said and increasing rates. The prediction is that the increases will continue, so now is a good time to consider locking in for a term. It makes sense, but with variable rate still under 2%, it’s easy to see why people wouldn’t want to lock in. If you are secure in your financial situation, you might just want to keep riding the variable wave.
There just never seems to be a clear answer on whether to lock in or stay variable, but this much is clear. Mortgage rates are low. Really low. And with them so low, it’s a great way for you to increase your piece of the pie. Take advantage, negotiate the lowest rate possible, then keep your payments a little higher and watch the principal amount of your mortgage decrease every month. You’ll be mortgage free in no time! Then throw a big party and eat your own pie!