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And the Variable Rate price wars begin… Here’s how you can benefit!

Variable Discounts Image, May 2018In order to fully understand how to take advantage of record-low variable rates, it’s important to learn some mortgage history.

BMO came out swinging first a week ago with a variable rate of Prime minus 1.00%. Historically, when a BIG SIX BANK comes out with a huge price decrease, it’s only for a very short time – likely 2-3 weeks. But, during that time, they can gain massive volumes and satisfy their market share requirements from the average borrower.

With all the talk of interest rates going up, this is welcome news for borrowers. Last week, I wrote about Variable rates at Prime minus 1.09%. This week, the banks have caught on.

Let’s look at these rates more closely. Prime minus 1.00% equals a rate of 2.45%. Compare this with a five-year fixed rate that ranges between 3.34% and 3.69% and that’s quite the savings.

An old rule of thumb comes into play here…

For years, I’ve had a simple rule that I’ve followed regarding when to choose variable over fixed. If the spread was 1.00% or greater, then variable was the obvious choice. In recent years, that spread had shrunk. At times, it was as low as 0.20%. Just two years ago, I was recommending that my clients take a two- or three-year fixed rate at 2.24% or 2.34%, and that’s because the very best variable rate was 2.45%. This was one of the rare times where I have ever recommended a fixed-rate product. As it turns out, this was a good choice.


May 2018 is a very important time in mortgage history. These record-low variable rates are a direct result of the government’s tighter mortgage rules, fewer mortgage transactions and banks grasping for market share.

Ladies and gentlemen, the winner is… You, the borrower. A rare moment in history.


If you have a variable-rate mortgage that is priced at Prime minus 0.50% or worse, then you should consider refinancing to take advantage of these exceptionally low rates. The math is on your side. Your penalty will be considerably less than the savings.

Here’s an example: Current mortgage of $500k. Current rate of Prime minus 0.50% = 2.95%. Monthly payment is $2,354. You have three years remaining on a five-year term.  Penalty to break mortgage is $3,687.

New mortgage at Prime minus 1.00% = 2.45%. Monthly payment is $2,228. Savings is over $7,500 in just the next three years.

This is an easy decision. In this scenario, there’s a net savings of almost $3,000.

Here’s another secret. Most borrowers won’t take advantage of these obvious savings. Why? It’s hard to say for sure… but it likely has something to do with our conservative Canadian nature. Or perhaps we can’t equate paying a penalty to saving money?

One thing I know for certain is that I’m informing you and all of my clients to get your mortgage reviewed now. ASAP. This sort of rate pricing won’t last. There is already an expiry date of May 31st, 2018. It could get extended, but I wouldn’t take that chance.

If you have a mortgage, do yourself a favour and speak with an experienced Mortgage Broker to get a review. And, I don’t mean go online and play with a calculator. There are so many mortgage rule nuances these days that it’s virtually impossible for you to know all the prerequisites.

A Mortgage Broker doesn’t charge any fees to qualified applicants. Go ahead, take advantage!

Your best interest is my only interest. I reply to all questions and I welcome your comments. Like this article? Share with a friend.

Steve Garganis: 416-224-0114;

Steve Garganis View All

As an industry insider, Steve will share info that the BANKS don't want you to know. Steve has appeared on TV's Global Morning News, CBC's "Our Toronto" and The Real Life TV show. He's also been quoted in several newspapers such as the Globe and Mail, The Toronto Star, The Vancouver Sun, The Star Phoenix, etc.

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