The Globe’s Rob Carrick says “Go with a variable rate.” These days, he feels there’s little risk and lots of reward.
Monster Mortgage’s Vince Gaetano agrees, saying, “We’re telling people don’t even think of locking in because prime is only going to be coming down.”
(If our numbers are any indication, people are taking the above advice. We’ve seen a lot more clients asking for variables lately.)
In terms of rate estimates, TD Economics predicts at least a 3/4% further reduction in prime rate this year. Other major banks are in the same approximate camp.
Carrick also talks about what he calls a “slick” strategy for those wanting a fixed rate mortgage. The strategy is this: get a variable mortgage with a teaser rate of prime minus 1% for one year. (Most non-teaser variable rates are currently at prime minus .50% – .75%) This way it’s possible to save more interest in the short term and convert to a fixed rate later this year if/when fixed rates come down.
It’s not that bad a strategy but there’s one big caveat. Make sure your fixed conversion rate is low enough to make it worthwhile. Many big banks, for example, will only let you convert your variable rate into their posted fixed rate minus ~1%. With posted rates at 7.39%, that would stick you with an abnormally high rate of roughly 6.39% if you converted today. Today’s best non-bank fixed rates are under 5.90%.
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