Ever since the Bank of Canada’s interest rate hit historical lows, people have been wondering whether a variable rate is still the way to go on their Vancouver, Toronto, and Ottawa mortgages. The latest argument for fixed over variable comes from Doug Porter, deputy chief economist at BMO, who says in his report, Time to Say Goodbye to Variable, that today there is only clear choice for Canadians.
Porter opened his report with some statistics on how much variable rates have saved Canadians on their mortgages since 1975. Those stats showed that over the past three decades, homeowners that chose a variable have saved money 84% of the time. Seems like a clear-cut case. But when you also take into consideration that banks now need to cut the discounts on those variable mortgages, in order to make up from money they’re losing with the low interest rate, the margin between variable and fixed grows even smaller, muddying the lines and making the choice not nearly as clear. Porter also says in his report that he predicts the Bank of Canada rate to go up by 4% over the next 4 years and if that happens, homeowners that are now holding a variable rate mortgage will be the ones to suffer the most from it.
Porter’s sentiments were reiterated by one of his BMO colleagues out in Vancouver. Jennifer Muench, vice president of personal banking in the city, also says that fixed rates will be much easier for homeowners to work with, and that it will save them money in the end. “When you go from variable to fixed,” she says, “what it really does is give you peace of mind. If you are in a situation where you have high costs for your mortgage payments, knowing exactly what your payments will be over a 5 or 10-year period is huge.”
Yes, the debate is clearly still on between variable and fixed, but nothing has changed really in the past 18 months. Banks are still slashing variable discounts, at least partially, and the interest rate still remains incredibly low – giving homeowners with a fixed rate a great deal they haven’t heard of in a long time, if ever. But, before you run out and switch your mortgage to a fixed rate, you must consider the source. BMO has come out with their hugely discounted fixed-rate mortgages for the second time in three months; and it might be a bit promotional that they’re now encouraging everyone to sign up for this kind of deal.
Truthfully, there’s only one person who can tell you what kind of deal is right for you, and that’s a mortgage broker. Wading through the waters of a fixed or variable rate is muddier than ever with interest rates so low. You need a professional that will be able to assess your own individual situation and guide you in the direction that’s right for you. A variable rate will not be right for everyone, but neither will a fixed. And you certainly shouldn’t be swayed just because someone is trying to market their own offers.
