There is a new article in the National Post discussing whether home-owners should choose fixed or variable in todays economic environment.
Fixed or variable? Time to revisit
It is interesting to me that over much of the time I have been in this industry, there are always pushes by the banks and media towards fixed rate mortgages, as this article appears to be intended for. The article seems similar in that while they always admit that over the long term, variable rate come out well ahead of fixed rates, the next words out of their mouths are “but that was before, and this is now.”
Currently, most mortgage lenders are in the low to mid 4% range with rates on a 5 year fixed mortgage. Variables are currently mostly around prime (2.25%). The interest rate difference on the fixed rate mortgage is basically double the variable rate, gives you the flexibility to lock into a fixed rate, and would be a relatively small penalty to pay off if you wished to refinance at any point in time.
I have met a number of customers who went into the bank and listened to their advice to lock in when interest rates were higher and when rates went down were stuck with a gigantic IRD (Interest Rate Differential) penalty. Although the current market would not dictate an IRD penalty on a fixed rate, it seems to be quite consistent in this encouragement to take the “safe route” when selecting an interest rate.
This is not to say I would advocate variable rate mortgages specifically, however, I do feel that the benefits of variable rates are quite overlooked.