There is a lot of talk about the Bank of Canada changing overnight lending rate at it’s next meeting. So some ill informed homeowners are rushing to lock in their mortgage rates to avoid any rate hikes. That is entirely understandable if you are risk adverse, however if you haven’t already I think there is a few things you should know.
Ok so to make sure that you are informed, we need to do some math. I just looked at the our current rates, and for AAA credit clients who required an insured mortgage the variable rates are averaging at prime ( 2.45) less 1.10%, so that means they start at 1.35% and the fixed rates for insured mortgages average 2.89%. If you haven’t done the math that is 1.54% in the difference. For uninsured clients the rates are slightly different, variable is prime -.90 (1.55%) and fixed is 3.04%, which is a difference of 1.49%.
Historically the Bank of Canada has moved rates at .25% at a time. There have been instances where that has been .50% and also .15% but the average in the past 12 years has been .25%. Given the current disparity between the current fixed rate and the available variable rate, I still believe that the variable rate is the way to go. The BOC would have to move the over night lending rate 8 times at .25% to equate to the current fixed rate. Even at that the variable rate is still superior as the potential penalty to discharge or break it is a fraction of what it would be for a fixed rate.
So do the math and see if this makes sense to you. However if you are risk adverse you may sleep better knowing that you have a fixed rate but you should at least make an educated decision.
I look forward to hearing from you in regard to your mortgage needs.
p.s.s- I should tell you that I am licensed in Nova Scotia, Ontario(M18001555) & in British Columbia(BCFSA #504098).
p.s.s.s You can download my new mortgage app here