It was only a couple of years ago that 5 year variable rate mortgages were as popular as the 5 year fixed. Lenders were offering deep discounts of up to .85 or .90% below the Prime rate, that made for a variable rate of 2.15 or 2.10%. Lenders started to realize that their profit margins were suffering, so they abruptly slashed their variable discounts. You started seeing rates of Prime (3.00%) or higher. This forced mortgage consumers to consider the 5 year fixed again. It was just not worth the rate risk when only receiving a small discount over the fixed rate.
Now the winds have changed again… fixed rates have been on the rise & variable discounts have slowly been growing, this has created a tipping point. With a current variable discount of .40 or .45% below Prime, you’re now seeing an interest spread of close to 1% (over current fixed rates). This provides the mortgage client with substantial monthly savings in the short-term, it’s just a question of how long the Prime rate stay at or around 3.00%. The most recent economist predictions have the Prime rate holding steady until the end of 2014 & possibly beyond, the economy will need to show consistent growth before we’ll see any movement.
While yes, there are rate risks with a variable mortgage, the mortgage holder does have the ability to lock into a fixed rate at any point during their term. Additionally, by default, if you needed to break the mortgage during your term there would only be a 3 month interest penalty (rather than the potential of a much higher, Interest Rate Differential penalty that are normally tied to fixed rate mortgages).
So maybe now is the right time to look at a variable rate mortgage again?
If you’re looking for a first time mortgage, or you’re shopping around to renew your mortgage – contact Darren Robinson at 705-737-6161, or go to our contact page.