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

郭森房贷

Fri Oct 23, 5:12 PM
1 G* A2 m9 x, s% B1 F1 k0 _By The Canadian Press
4 _. x; ~$ _* i# F7 z; r
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.

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.

A fixed rate locks the borrower into a set interest rate for a certain period of time.
$ d7 t9 E/ y  y' B: Z
That gives many borrowers peace of mind knowing how much money to set aside each month for their mortgage payment.
2 B- A" |9 C* g, i
Variable rates change along with interest-rate moves.
9 p# U( w% h( s1 n, X/ l/ |3 z
BMO 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.
* _5 }  K! @0 |% |. d
7 A- Z0 \" i1 K( W9 B5 g' mBMO 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.
$ T0 j8 d- m1 x% i/ m
The 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.
* ~& M; e/ @& J: g0 M
"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."
) \& k2 T' I/ ?$ U4 V
Canada has been in a long-term declining rate environment since the early 1980s, the bank suggested.
- b; E0 D+ k6 Q! H: 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