The days of discounted variable rate mortgage are over again. With prime at 3% at most financial institutions, discounted variable rates could be seen as low as 2.1% this passed year. However, in the last 10 days what was left of that discount — has disappeared at all of the major banks.
You have to head back to the credit crisis of 2008 to find a similar period where the discount disappeared. At the time, consumers were paying a 100 basis point premium above prime for the privilege of a floating rate. The new reality is expected to reshape the mortgage market in the coming months, reversing a strong trend that had seen consumers roll the dice on interest rates, confident in the belief they were not going up. Canadian Association of Accredited Mortgage Professionals says 37% of consumers opted for variable rate mortgages over the last year, bringing the total percentage of those with a floating rate to 31%.
Currently, you can borrow at 3.29% if you lock in for five years or 3.09% for four years. These rates are extremely low for piece of mind of a locked in rate. Another key advantage for a term five years or longer is you get to use the rate on your contract to qualify for a mortgage as opposed to the current five-year posted rate of 5.39%. The difference means you'll qualify for a larger loan by locking in.
Clearly there is no discounting how dependent the housing sector has become on cheap money but times have changed. If you are currently at a variable rate discounted from prime, enjoy the cheap money and pay off as much principal as you can.
Over the last number of years we have advised clients to choose the variable rate but now we are suggesting fixed.
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