Perhaps one of the most major decisions each of us makes with regards to our mortgage is which term to choose from: variable or fixed. Definitely not an easy task as we’re all wanting to pay the least amount of interest over time, yet have some comfort that the type of mortgage we do choose is the best choice overall.
None of us have a crystal ball to predict future rates but we can look at the past. Let’s look at where rates were a year ago today. Some of our mainstream lenders were offering a Quick Close (30 day) 5 year fixed rate of 4.39% and normal 5 year fixed rate (allowing for 120 rate holds for pre-approvals) was at 4.49%. The best 5 year closed variable rate mortgage was at Prime plus 0.40%. The Prime lending rate was at 2.25% so the variable rate would have been 2.65% at that time.
It’s interesting to note that today, one year later, the best 5 year fixed rate for a Quick Close is 4.29% (10 basis points less) and best 5 year fixed rate (again allowing for a 120 rate hold) is 4.39% (also 10 bps less).
The greater difference is in the variable rate product where the rate differential is a full 1.0% in the fixed portion of the variable rate (difference between +0.40 and -0.60%) while the Prime lending rate has only gone up 0.25%. This is a net difference of 0.75% in your favour over last year’s rate if you were to choose a 5 year closed variable rate mortgage today.
Also to keep in mind is there is a substantial difference in rates between the variable and fixed (currently 2.39%). This means that the Prime lending rate will have to go up by this amount just to be equal to the 5 year fixed rate being offered by lenders today. Definitely something to consider when making your decision.
If you would like more information on this and how it may apply to your own personal situation, please give me a call to discuss further. I can be reached at 250-762-2070 or by cell at 250-808-9000.
Enjoy your summer!
Ed
