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“Things Have Changed”

Fixed-or-Variable-Rate That’s Desjardins’ conclusion regarding the long-held superiority of variable rates over fixed rates. 

Desjardins declared last week that it “must drop the time-tested assertion that a variable-rate mortgage is always the best choice.”

Based on Desjardins’ assumptions, it says “fixed-rate mortgages currently appear to be the least costly.”

This is just one institution’s opinion, but it nonetheless shines a new light on the popular variable-rate research, like that of Dr. Moshe Milevsky.  (For the record, even Dr. Milevsky has adapted his previous conclusions to the current market.)

Here are additional details from the Desjardins study:

  • Desjardins tested six hypothetical mortgage scenarios to reach its conclusion.  As a result, it says “a fixed five-year mortgage currently seems very attractive for many borrowers.”
  • Mortgage spreads have soared in the last year but Desjardins feels they “will come back down as financial tensions resolve.”  Even so, spreads “will remain significantly higher than before the [credit] crisis,” it says.
  • Desjardins Senior Economist, Mathieu D’Anjou, concedes the difficulty of predicting interest rates.  He asks, “Is a variable-rate mortgage still advantageous for a borrower? “The answer to this question depends on an unknown,” he says.
  • Variable rates today “leave little room for a discount,” according to D’Anjou.  “This is because financial institutions currently prefer granting fixed-rate mortgages rather than variable rate mortgages.” (because “financial market changes have made variable loans much more complex and costly for institutions to manage.”)
  • Desjardin’s predicts rates will be extremely low until mid-2010, then gradually rise about 4.50%. 

In sum, when choosing a mortgage Desjardins advises us to “think about more than the current (low) variable rate.”