Friday, October 23, 2009

Stay variable or lock into fixed rate mortgage?

This Globe and Mail article tries to answer the question burning in every mortgage owners mind, "Should I stay variable or lock into the fixed rate?" They end by saying it's up to you. Well, what should you do?

Canadians are enjoying the lowest interest rates in history. A few of my mortgages were at 1.65% for a while providing incredible cash flow after all other expenses were paid. But around the net and on the news we're hearing that rates will rise probably in June or maybe earlier. It all depends on the economy's health.

Generally speaking variable rates will do better for you in the long run. Now, the gap between variable and fixed is so large, you might get huge increases in rates and the amount your mortgage costs you every month.

There is no clear cut answer but wait and see. It all depends Canada's economic health in early 2010.

If the global economy recovery looks strong:

“could force the Bank of Canada to raise interest rates aggressively, driving variable mortgage rates higher, but leaving fixed rate choosers unscathed.”

but if we are all still wobbly:

“Low and steady inflation, taken with a fragile global economic recovery, points to the Bank keeping its commitment to hold rates steady through June 2010 (conditional on the inflation outlook),”. “There is also some risk to locking in as fixed rates could fall if the economy performs worse than anticipated.” Mr. Douglas Porter and Mr. Benjamin Reitzes BMO economists

As for me I can hold on until spring 2010 because the savings we are getting now at these rates are phenomenal. The best thing to do is find out your bank's stand on penalties for locking in mid-term and how they affect you in the long run.

1 comment:

Anonymous said...

Mortgage rate is a important factors for the mortgage holders. You will go for variable rate or the fixed rate. But before going for it you need to research on it. As market is changing very fast. So, make yourself update like it. As this post will surely help to decide the right one. Keep up your good work.