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Front-Loaded Variables With Martin Shao

Front-Loaded-Variable-Mortgages With the Bank of Canadapromising” a low overnight rate until 2010, many homeowners are considering taking out variable-rate mortgages for a year and then locking in.

We spoke with Martin Shao, President of Valueland Mortgages, about how front-loaded variables fit into this picture.  Our chat follows here…


CMT:  Martin, Thanks for being with us today. I noticed Valueland now offers a front-loaded variable at prime + 0.10%. Why is a front-loaded variable a good option in this market?

Martin Shao:  According to our central bank’s last monetary policy, Canada’s overnight lending rate is expected to remain at a low level until mid next year. As a result, variable rates will remain low for about a year or so.

However, we expect elevated interest rates towards next summer.  People with variable-rate mortgages can then choose to convert into a fixed rate.

Variable-rate discounts after that conversion period do not provide much benefit.

CMT:  Okay, so in other words, a front-loaded variable packs the greatest discount in the first year. Given this, would you recommend that most well-qualified borrowers with sufficient equity choose a front-loaded variable, or a discounted fixed rate?

Martin Shao:  My top recommendation is still for a low discounted fixed-rate mortgage. However, for those who would like to take some risk and save in the first year (when their mortgage amount is the most), front-loaded variables provide more savings up front.

CMT:  What risk is there, over the next year, in choosing a front-loaded variable over a fixed-rate?

Martin Shao:  The risks are associated with the general Canadian economy. If the economy turns unexpectedly better before next summer, variable rate takers would see a negative impact on their mortgage payments.

The second risk is the uncertainty of fixed rates when a variable-rate borrower wants to lock in his or her mortgage rate.

CMT:  Last year, there were several lenders promoting front-loaded variables.  This year there are almost none.  Do you expect lenders will re-launch front-loaded variables anytime soon?

Martin Shao:  With short-term rates stabilizing, lenders may re-launch this type of product in the near future to differentiate themselves. Even without lenders re-launching them, Valueland has started offering front-loaded mortgages in a different form.

CMT:  That’s interesting that you’ve created your own version. Who would you say these products are best suited for?

Martin Shao:  The deep discounted rate for the first year would be best suited for those who are almost 100% sure they will convert their variable rate to a fixed rate mortgage.

CMT:  Excellent. Thanks again for the perspectives Martin.


Martin Shao is founder of Valueland Mortgages. Valueland has a highly successful Internet brokerage model and is based out of Markham, Ontario. Before he became a mortgage broker, Martin had an extensive background in financial services. He holds a B.Sc. and a Master’s degree in financial information management and has been one of ING Direct’s and INALCO’s top-performing brokers.

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Last modified: April 28, 2014

Robert McLister is one of Canada’s best-known mortgage experts. A mortgage columnist for The Globe and Mail, interest rate analyst and editor of MortgageLogic.news, Rob has been covering Canada's mortgage market since 2007.