14 July 2010

Instead, we can give you an approximate model of what MAY happen, IF the ecnomists’ forecasts are correct (though it’s not always so).
As the previous weekend showed, the big bank projections concern a 4.50% prime rate by year-end 2011. We decided to add another 0.5% hike (just in case), so in the end, the 10-year average for prime rate became 4.72%.

At this moment our current fixed vs. variable model assumes:
•    3.99% discounted fixed rate.
•    Discounted variable rate prime – 0.70%
•    A well-qualified borrower with satisfactory credit, equity, job stability, debt ratios, etc.
•    And the BoC rate hike pause in early 2011

Of course, the rate-change assumptions are based on the major analysts’ forecasts, who have less chance of being wrong than any of us.
Based on such assumptions, the variable-rate mortgage comes out ahead by about $500 every $100,000 of mortgage. And it’s for five years.
Nevertheless, it’s always very important to talk to your mortgage advisor and discuss all the details thoroughly.
It should be noted that this article compares only two terms:  a variable and a 5-year fixed. We may offer you a shorter-term mortgages and it can be even more profitable in your case.
It’s necessary to understand that long-term fixed rates are not replacing variable mortgages, even despite the possibility of higher rates in the nearest future. Well-qualified borrowers should really consider putting at least part of the mortgage in a variable or short-term rate.