The higher the spread, the more expensive a fixed-rate mortgage was compared to a variable at that time.
Despite a limited sample size, the chart is consistent with the common belief (and research) that variable rates are the better bet long-term. In fact, since 1997 variable rates have been almost 1/2% cheaper than fixed rates on average.
(The average fixed rate since 1997 has been 5.47%. The average variable rate has been 4.99%.)
While the future may deviate from the past, it’s reasonable to assume a “safety” premium will remain built into fixed-rate mortgages. If you don’t need this protection (and most don’t assuming they have a hold-the-payment option) then strongly consider the potential savings of a variable rate.
Note: The Bank of Canada (our data source) doesn’t database actual market rates. Therefore we’ve made two assumptions. For the variable rate we’ve assumed a 0.5% discount from prime rate. For the fixed rate we’ve assumed a 1.5% discount from posted bank rates. While not scientific, these assumptions are in the ballpark.
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