Borrowers reminded of flexibility amid fixed-rate fever

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Outgoing Bank of Canada Governor Mark Carney may be delighted that consumers are heeding his warnings and have been flocking to fixed-rate mortgages in record number, but one broker is advising borrowers to pick shorter term mortgages because they offer greater flexibility.

“Right now people are looking for security, that’s why they are going for fixed-rate mortgages,” said Omer Quenneville, a mortgage broker with Centum in Toronto. “However, I would recommend that borrowers go for three-year mortgages just so they can quickly switch once discounts for variable-rate mortgages go down.”

In a speech before members of the Chartered Financial Analysts Society in Toronto on Tuesday Caney said he has seen some “encouraging” signs in the housing market that his persistent warnings about future interest rate.

The BOC chief said Canadians, who have one of the highest debt-to-income ratios in the world, appear to be taking the looming possibility rate hikes seriously as seen with the increase take up in fixed-rate mortgages.

“The share of new fixed-rate mortgages has almost doubled to 90 per cent this year, reflecting the combination of attractively priced fixed-rate mortgages and the tightening bias of the Bank of Canada,” said Carney. “I wouldn’t say mission accomplished…but a more sustainable housing situation in Canada is within sight.”

Since September 2010, the central bank has kept its one-per cent policy rate but last year warned it will likely move towards higher rates. When this happens, Quenneville said, variable-rate mortgages are likely to become attractive again.

“As a broker, I will be telling my clients to go for shorter fixed-rate mortgages,” he said. “When the prime rate goes up, they’ll have more flexibility to switch mortgages.”

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