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Selling Fixed Rates

fixed-or-variable-mortgage-rates We’ve heard stories lately about mortgage reps issuing blanket warnings to homeowners about variable rates. The claim is that market uncertainty demands the certainty of fixed rates.

A couple of our clients have also been getting fixed-rate renewal offers from their existing lenders–far ahead of their maturity dates (6+ months ahead in some cases).  Interestingly, the fixed rates in those offers have been unusually competitive.

Why are some lenders more biased towards fixed rates all of a sudden?

Perhaps it’s because lenders have been making more money on fixed-rate mortgages lately.  Put another way, the spread between the cost of funds and the rates lenders charge has been wider with fixed mortgages.

Alternatively, perhaps those lenders don’t have cheap variable rates anymore and they need to sell fixed rates.

Whatever the case, the whole thing can be somewhat troubling.  We’re seeing borrowers with a good I.D.E.A. (1] income, 2] debt ratio, 3] equity, and 4] assets) being sold 5.50% fixed rates.

If you’re in a solid financial position, and you can find a variable at prime (and yes they still exist), then you’re immediately 1.50% behind the eight ball if you choose a fixed.  Moreover, by going fixed you’re bucking all the research in favour of variables.

Here’s another thing.  The big discounts are gone in the variable-rate market. But that doesn’t mean they’re gone forever.  If you get an open variable at prime, you’re well positioned to move to a discounted variable (at prime minus X) once those discounts reappear.

In sum, if you’re tolerant of a little risk for a lot of reward, and you meet the four criteria above, question those who recommend a fixed rate.  Maybe a fixed is right for you after all (every borrower has unique needs), but question nonetheless.