Wednesday, April 7, 2010

the big RATE question

To be honest, it has been a while since I contemplated rates.  I can admit, I am not really watching rates.  Eventually, sometime, rates will go up.  After that, sometime again in the future, rates will come down. 

I know that sounds deep and profound but the great thing about rates is that they fluctuate.  In that lies opportunities.  Check out this graph - CLICK HERE

Over the past ten years the variable rate has averaged 4.84%, whereas the 3 year fixed averaged 6.24% and the 5 year fixed averaged 6.71% - right now at TD Canada Trust, you can get 4.49% ten year mortgages. 

Historically, variable rate mortgages have always been Prime minus.  In Summer 2008, banks changed their policies to reflect Prime plus.  One of the bankers I speak with often is shocked by this turn about.  He told me in 24 years at the bank, he has never seen Prime plus. 

My thought are there is a 2 percent buffer in the rates right now.  Eventually, as rates increase, banks are going to change the lending practice from Prime plus to Prime minus again.  Over this time, as rates climb, (slowly in my mind), the variable rate will begin it's fluctuation. 

I am not considering locking in right now.  I think if you are weary and have a huge adversion to risk, locking in by end of June is a good idea, but I think in the longer term, variable will still be the right mortgage solution.  The prime lending rate would have to reach over 5% before fixed will out perform variable, a growth of 4%.

Between now and then, think of the cash flow and potential mortgage reduction you would not be cashing in on.

Great article on Variable rate mortgages winning, almost all the time - click here

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