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Mortgage Broker News | 05 Sep 2013, 12:00 AM Agree 0
Some brokers still aren’t completely sold on the idea of variable rates; despite the rising in fixed and the Bank of Canada announcement Wednesday suggesting ARMs may remain at historic lows until 2015.
  • Ron Butler | 05 Sep 2013, 10:25 AM Agree 0
    So with the bond yields headed straight up this week; if we hit a 5 - year fixed of 3.69% next week and 5 - year Variable is Prime less 0.60% or 2.40% then there is a 129 basis point spread by next week.

    The majority of economists predict no Prime Rate increase till late 2014 early 2015. When Prime rate does go up, it normally increases 25 basis points and at no faster a pace than once every 6 weeks. So once it started going up, the Variable Rate would need 5 increases (30 weeks) to get to 3.65%. What if Prime only went up 1.00% in all of 2015, the client would be sitting at 3.40% till 2016.

    None of us really know what will actually happen. We don't even know that fixed rates might come back down again. We know none of these things in absolute terms. So if I am honest and say I cannot see into the future perfectly then my fall back is: take a rate that is 129 basis points less and pay your mortgage off faster for now and let us carefully monitor the changes in Prime.

    Bottom line is nobody really knows so I default to lowest available rate.
  • Cameron Mackie | 05 Sep 2013, 07:56 PM Agree 0
    I can't agree more Ron.

    I've been selling variable with confidence lately. Over 73% of my clients are now jumping aboard the variable ship, I always prepare them for possible rate "storm" however the spread is to large to ignore.

    I find we all fall victim to the media scare, but numbers don't lie. Research still shows variable outperforms fixed by 88%.
  • Jake | 06 Sep 2013, 04:42 AM Agree 0
    Prime-60 isn't available without a buydown so although I agree with you in selling variable, I don't agree that that's the baseline rate to compare it to.

    If you take 2.5% (or whatever you choose to buy it down to) and pay as if you're paying 3.5% or 4% even, you've saved a tonne and insulated yourself before rates jump by 1.5% (upwards of), so you have a lot of wiggle room before rates go up or WHEN they do.

  • Ron Butler | 06 Sep 2013, 06:16 AM Agree 0
    Well Jake, Prime less 0.60% is my base rate. We offer it 15 times a day.
  • Jake | 06 Sep 2013, 06:21 AM Agree 0
    Yeah I know YOU offer it, and so can I, with a buydown. The fact is your math is wrong because -60 isn't the "base" rate.

    Although it is wrong in a small sense because I still agree with your overall sentiment. -45 as the base rate still makes sense to go variable.
  • G | 16 Sep 2013, 03:32 PM Agree 0
    I currently have a rate hold of 2.89% fixed for 5-years (expires at the end of the month), but have also been offered a variable closed for 5 years of 2.5% I'm struggling with the fact that the spread is only 39 basis points. Does it make more sense to go closed or variable when the spread is not as wide as your example above?

    Any advice would be helpful
    Thanks.
    G
  • Ron Butler | 17 Sep 2013, 06:25 AM Agree 0
    @G Keep the 2.89% fixed , please note that I stressed the "spread" in the rates needed to be high in order to make variable a great alternative to fixed but while right now it is 129 basis points if you were starting fresh today 39 basis points spread should mean you stay with the 2.89% 5 - yr rate.
  • G | 17 Sep 2013, 08:36 AM Agree 0
    @Ron Thank you!
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