Thinking about a variable mortgage?
I was reading an interesting article in the Financial Post today written by Garry Marr. It talked about the historical advantages of a variable rate mortgage and if now is the time to choose a variable rate over a fixed rate. The article quoted a study done by professor Moshe Milevsky in 2001 which looked at interest rates over the previous 50 years and determined that 88% of the time you would have been better off to take a variable rate mortgage. Now, I don’t think this is a surprise to most people. It has long been believed that you save significant interest expense by going with a variable rate. There will be times when your variable rate will be higher than the current fixed rate, but over the long run your variable rate will be lower more of the time. It was however, interesting to read the number is as high as 88% . The article goes on to say if you factor in the past 9 years that number jumps to 96%. That is pretty strong evidence that it pays to take a variable rate mortgage.
But is now the best time to go with a variable rate mortgage? I discussed in one of my other posts that the premium most lenders are currently charging over prime makes it slightly less attractive. Since I wrote that post premiums have been falling and in some cases lenders are offering variable rates at Prime without a premium.
If you are looking at purchasing a new home or refinancing your current home you should have a serious conversation with your broker about variable rate mortgages and if they suit your particular situation.
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