Goodbye, variable-rate mortgage. Everyone’s going fixed these days, and for good reason

Everyone else is moving over to fixed-rate five-year mortgages. Mortgage agent David Larock says 95 per cent of clients are choosing a fixed rate, compared with a 50-50 split between fixed and variable last summer. Mortgage broker Sandra Epstein says she’s doing almost exclusively fixed rate, while broker Mike Bricknell said fixed rate accounts for 90 per cent of his business right now.

For the moment, homeowners are largely avoiding variable-rate mortgages. Driving this trend is our slow-growth economy and its effect on interest rates. We now have short-, medium- and long-term interest rates that are very close to each other. Normally, rates step higher as you go from short- to medium- and long-term.

The usual gap between variable and fixed rates saves you money on interest, and it provides you with a margin of safety. The CMP study found that five-year variable-rate mortgages were on average 0.55 of a percentage point cheaper than five-year fixed-rate mortgages last year and 0.7 of a point cheaper in early 2019. With this differential on rates, the variable-rate mortgage remains cheaper than a fixed rate even if the Bank of Canada’s overnight rate rises a couple of times.

globemoney Is this Stuart from Big Bang theory?

globemoney I sincerely miss my variable rate mortgage ... just renegotiated a couple of months ago 😞

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