With interest rates sinking to record lows, mortgage brokers are facing increasing demands from clients about whether to choose a fixed-rate or variable-rate mortgage.
"Most variable-rates are sitting just above three per cent and we expect rates to stay like that until we get out of the recession, which is probably going to be in about a year," said Mark Herman, an agent with Mortgage Alliance in Calgary, who said he's been getting constant calls from clients and has been talking to colleagues about new fixed- and variable-rate offerings.
He said many borrowers are choosing a variable product to take advantage of the low interest rates, with plans to lock into a five-year fixed-rate mortgage when interest rates start to rise. This strategy was also touted on former Conservative MP and author Garth Turner's blog last week, writing that the "best possible course of action" is to choose a variable-rate mortgage, use the money saved on low rates to pay down the mortgage principal and then lock into a fixed-rate when they go up.
In this scenario, borrowers would have to lock into a fixed-rate period that's at least as long as the period left on their original variable-rate product, said Herman.
He added that while variable-rate mortgages look good, first-time homebuyers who aren't as familiar with the market might prefer a five-year fixed-rate product or take advantage of a something like a 10-year fixed-rate mortgage at 5.25%, which is currently the lowest rate for that product on the market.