If you were in a Variable rate mortgage over the last 2, 3, 5, 10 years or longer….then you paid less interest than someone in a Fixed rate product. You probably saved $$thousands each and every year. Variable rate has been lower than the 5 year fixed rate in over 88% of the time.
But how about today….? Well, the Banks have changed the mortgage landscape. They have decided there isn’t enough profit in Variable rate mortgages. Up until 6 months ago, anyone needing a new mortgage could get a Variable rate at Bank Prime (3.00%) less 0.75% and maybe even a little better..! If you took a Variable rate 4 years ago, you might still be enjoying Prime less 0.90%!! Today, a quick search on the net for Variable rate pricing and you’ll find Bank Prime less 0%…. some are actually charging Bank Prime + 0.15%.
But it’s not all bad news. With the bond market hitting all time lows, we are also experiencing historical low 5 year fixed rates. Today, the best 5 year fixed rate seems to be 3.39% (WORD OF WARNING… there are some NO FRILLS rates of 3.19% or lower being advertised out there… these NO FRILLS products carry limited or no prepayment privileges and you cannot exit these product without selling your home. We are not quoting those rates).
Any upward movement in the Bank Prime rate and you could actually be paying more for that Variable rate vs today’s 5 year Fixed rate. Yes, today we must consider Fixed rate as a good option…. Just make sure you are choosing the appropriate term. Anything shorter than 3 years does not seem to give enough of a rate guarantee for most of us. Anything longer than 5 years is too costly. 5 years seems to be a good option in most cases. But not for all… we are all different and have different needs… speak to a Mortgage Broker to review all available products and decide which one fits you best.
My guess is that Variable rate pricing will continue to be priced at Bank Prime for the next 6 months to 12 months or at least until Bank Prime moves up or until one of the Banks is losing too much market share and wants to attract more business.
We will be watching and reporting.