A variable rate mortgage has consistently cost less than a fixed rate over time with only a handful of occasions where a variable rate was the less favorable option, says BMO in a new report today.
But that is about to change. BMO’s interest rate outlook now projects a “significant advantage” to choosing a fixed rate.
While the decision still depends on the individual, the low rate combined with a shorter 25-year amortization would significantly strengthen a borrower’s financial stability.
For those who don’t have much financial flexibility, and would run into difficulty from a pronounced upswing in interest rates (typically first-time buyers), the potential extra cost for peace of mind now appears to be a price well worth paying.
Generally speaking, mortgage pricing is relatively efficient and the fixed rate is usually a good approximation of expectations of the variable rate. But, current pricing appears very attractive on fixed-rate products, especially with the recent upswing in bond yields and better tone in the global economy.
Given the historically low long-term rates and the fact that central bankers are becoming more upbeat on the growth outlook, the fixed-rate option now looks superior.
You can read the entire report here