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Fri Oct 23, 5:12 PM3 ]2 y, l# } j: h n! M; g
By The Canadian Press7 Y+ @3 t2 ~1 _, Q: t/ H
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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. : o1 x/ n* S) F
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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.
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. m' o4 v Q( B/ jA fixed rate locks the borrower into a set interest rate for a certain period of time. & ~' D/ z1 @) X0 I7 L R
2 _# {' x" H3 i' ?That gives many borrowers peace of mind knowing how much money to set aside each month for their mortgage payment.
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6 X. v) d+ ?3 ^( X* g5 i4 Z& lVariable rates change along with interest-rate moves. : {8 V# r( I% D
' f$ X C8 W# `' X! r7 kBMO 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.
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% H6 D7 `, ~! ]7 y# z' W- vBMO 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.
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0 `( ^ W1 S( o8 |, ?( xThe bank added that the current interest environment is similar to both of these periods.
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"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.
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0 t- ?5 b Y% O"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." ' D j' U9 j3 i2 A
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Canada has been in a long-term declining rate environment since the early 1980s, the bank suggested. 3 x0 |2 V* {/ v" x* F/ ` W8 E7 N
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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. |
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