As you may know, the Prime rate has been at 3.0% since September of 2010, and there has been very little indication that we will see Prime rise in the near future. The Bank of Canada has not ruled out an interest rate increase, but the story seems to be the same on every announcement date – that a change would be a result of local and global economic developments. What does this really mean? Prime has not changed in a very long time, and it is unclear when it will rise.
On another front, an interesting thing has occurred over the last year with respect to the relationship between variable and fixed rates. Historically speaking, the difference between a fixed and variable mortgage rate is usually 1.5 to 2.0%, with the fixed rate higher than the variable. This makes the variable a more attractive option, at the risk of rates rising and diminishing that advantage. Today however, the difference between fixed and variable rates are less then 0.50%, making the risk of taking a variable higher than in the past. Part of this has to do with the current spread available for variable rates – the days of Prime -0.75% are long gone, where the average market rate is Prime -0.10%.
So this leads to big question: Is it time to lock in my variable rate?
Of course the answer is not straight forward – all we can do is look at the facts:
1. Fixed rates are once again at an all time low (As low as 3.09% for a 5 year fixed)
2. Prime has not changed in almost 2 years
3. The global economy is not stable
4. Interest rates can change at any time
In summary, it doesn’t look like Prime will change any time soon, but fixed rates need to rise. All and all, interest rates need to rise. Will they rise next month, or will it be in 2-3 years? Stats show riding out the variable is cheaper than a fixed rate.
So what do you think? If you have a variable rate mortgage, is it time to lock in, or should you continue to ride the variable wave?
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If you have any questions you can call the office directly.