With the most recent interest rate announcement last week, and the knowledge that interest rates are set to remain low for the foreseeable future, the debate for variable rate mortgage over fixed rate has gained new momentum.
According to the Bank of Montreal, history would indicate that a variable rate is the way to go: “Research shows that there is little debate as to which has been the better option for homebuyers. Typically, borrowers save money by staying in variable products, and riding the rollercoaster of fluctuating rates. In fact, since 1975 the cost-effective route for borrowers was to stay variable 83 per cent of the time. And while the spread between 5-year fixed mortgage rates and variable rates has fallen from the all-time high hit in mid-2010, it remains historically elevated. “
Although, it is not as straightforward as one being better than the other, history aside. And, as it has a lot to do with matching product to person too. “I still believe that choosing between a fixed-rate versus a variable-rate mortgage has a lot to do with a person’s mind-set. I get nervous clients who went variable and then call or send e-mails every week. If you can handle a bit of risk, it’s great. But if you can’t, you should lock into a fixed rate, even if it is a bit higher.”
It is about lifestyle too, says Blomquist: “”You want to decide that if rates do land at 7%, you can handle it. After all, you need to be able to sleep at night.”
There is much to be gained too, into doing a little research, and knowing both your client- and your lenders too, as Blomquist suggests: “I definitely caution anyone looking at variable rate mortgages should check the lender’s “best rate” policies to ensure you can still get a discounted rate when locking in. “Not all banks offer it.” When working with a broker we can ensure that the lock in terms are that the client would get the lowest locked in rate and not the posted rate like some banks offer.”
And, too in the current rate environment, there exists tremendous opportunity to be proactive with clients who could benefit in the long term by refinancing or consolidating now: “Given the borrowing climate even those with a current mortgage may find it’s an ideal time to refinance, even if there are penalties”, she adds.
“Sometimes it will save you a lot of money in the long term. The results can be unbelievable when you crunch the numbers. I’ve seen some people save themselves $1,000 a month simply by consolidating your debts into your mortgage.