As banks, mortgage lenders and markets take into account the latest increase in the Bank of Canada’s overnight lending rate (June 20th), borrowers would be well advised to review their mortgage position with a trusted mortgage broker – particularly so for homeowners with a variable rate mortgage. An insightful article in the June 28th Financial Post points out that 5 year fixed mortgages are now at near-record levels, and some lenders are predicting up to a 1.5% rate increase by 2011.
While Bank of Montreal senior economist Sal Guatieri, talking to the Financial Post concedes that “variable-rate products have worked out better than fixed-rate mortgages throughout history”, he notes that “the tide may be turning”. Tracking long term trends in fixed versus variable rates, sticking with a variable rate usually means the borrower does better and is ‘in the money’ so to speak – particularly in cycles where interest rates are declining
However, with the Bank of Canada having once again raised its interest rates – and with more rate increases readily foreseeable – Mr. Guatieri notes it is reasonable arguable that locking into a fixed mortgage is the right play.
According to Mr. Guartieri, BMO is forecasting that the Bank of Canada overnight rate will climb to 4% in the following three years, which would mean that interest rates on variable-rate mortgages will hit 6% by about 2015.
With 5 year fixed-rate mortgages at about 4% – and with, perhaps, still some more room for banks (according to Mr. Guatieri) to lower fixed-rate rates a fraction – working with a mortgage broker to get the best fixed-rates on the market would likely provide both savings and peace of mind as variable-rates inevitably climb over the next few years.
