ZT-BMO study says variable-rate mortgages better deal for borrowers most times

郭森房贷

Fri Oct 23, 5:12 PM
By The Canadian Press

6 J2 ~  p5 _" _9 b0 A0 L1 ETORONTO - Fixed mortgage rates may help you feel secure in your budgeting, but the Bank of Montreal (TSX: BMO.TO) says the more volatile variable rate mortgages will save you money in the long run.
8 _! P1 r( k; C$ m( M' u
The bank put out a report Friday showing that, over the past 30 years, variable-rate mortgages have been more cost-effective about 82 per cent of the time. That may come as a surprise to some after studies have shown many Canadians prefer a fixed-rate mortgage.

: K6 I/ ^( y% o$ L5 lA fixed rate locks the borrower into a set interest rate for a certain period of time.
2 z& p, f$ d* H5 x
That gives many borrowers peace of mind knowing how much money to set aside each month for their mortgage payment.
7 D" I+ p/ z1 E
Variable rates change along with interest-rate moves.

  E* z4 r. K" n8 [& b* OBMO said the Bank of Canada's overnight lending rate is at its lowest possible point now, which could mean there are fewer benefits to a variable rate in the foreseeable future.

BMO highlighted two historical periods when fixed rates were considered beneficial - in the late 1970s and late 1980s - and both were just before interest rates started rising again.
& h1 m, P; R1 N5 C4 c0 y% ]# j
, X# E, L( i0 HThe bank added that the current interest environment is similar to both of these periods.

"Short-term rates are at extreme lows and pressure is likely to build for higher rates in the year ahead," said deputy chief economist Doug Porter in the report.

7 t( |+ t, v0 n) O! n"The question of whether to lock in to a longer-term fixed mortgage rate or stay in a variable rate has become an increasingly complex and important issue."
. ]2 K4 k6 g. Z  I+ T4 V2 m
Canada has been in a long-term declining rate environment since the early 1980s, the bank suggested.
9 _: T1 c- A8 v, h% k- G+ l' B
As a result, the spread between five-year fixed mortgages and variable mortgages has been pushed wider in recent years, and is now near an all-time high.

edmonton-fish

HIDEdmonton