6 Dec

The smart money�s long infatuation with the variable-rate mortgage has ended, perhaps a little hastily.

General

Posted by: Rabinder Dhillon

A lot of homeowners have saved a ton of money with variable-rate mortgages, where your borrowing cost floats with your lender’s prime lending rate. The prime rate is, in turn, guided by the Bank of Canada’s overnight rate, which was pounded lower in the financial crisis of 2007-09 and hasn’t rebounded. And yet, for reasons that may not be entirely sound, the popularity of the variable-rate mortgage is in decline.

The main argument today against going variable is that the usual cost advantage over fixed-rate mortgages has declined to a small fraction of what it once was. Given all the financial uncertainties of today, many borrowers are happy to pay a nominal premium for the certainty of knowing they have locked in payments that would be unaffected if interest rates rise.

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