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

郭森房贷

Fri Oct 23, 5:12 PM
; M3 F) I) X, RBy The Canadian Press
7 b' v3 U, i! U1 ?2 o, f
TORONTO - 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.
$ e; c( f& U9 f0 s) ?& q3 E. r+ K
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.
2 H- Q( N9 q$ J+ \. z
A fixed rate locks the borrower into a set interest rate for a certain period of time.
; R6 q. I- ]) S3 k0 {% k
! f$ w7 d. x3 Z4 Y- I" P) F4 x2 B$ AThat gives many borrowers peace of mind knowing how much money to set aside each month for their mortgage payment.

Variable rates change along with interest-rate moves.
. @# a* [4 V) ~4 E
  |7 ~9 C1 w8 \, xBMO 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.

6 d% a0 _7 ^# N+ o: M9 K* aBMO 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.
( D* W3 S9 y( E8 o: D- Z% K
" Y2 J7 w! o+ cThe 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.

6 ^1 U. t# D6 i" O* s"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."

% V9 V  {) n, g2 w+ nCanada has been in a long-term declining rate environment since the early 1980s, the bank suggested.

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