Fixed-rate demand expected to spike

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Mortgage broker Toma Sojonky says a recent move by lenders to prune their discounts to the prime rate for new variable rate loans has borrowers pausing and considering their options. And combined with fixed rates drifting lower, some borrowers with variable rate mortgages are starting to make the switch and lock in their loans.

“Variable-rate clients who touched base in the spring and vacillated are now calling back with instructions,” said Sojonky, an adviser with Verico Paragon Mortgage Group in West Vancouver, B.C. “We saw fixed rates begin to inch up in the summer, only to drift down again recently - and some clients are pouncing in reaction.”

According to RateSpy.com, the best five-year fixed rate in Ontario was about 2.28%, while the best five-year variable rate mortgage was 1.75%.

That gives the variable-rate mortgage just a 0.53 percentage point advantage over the fixed-rate offering and if the Bank of Canada starts to boost its key interest rate next year, that advantage will shrink even smaller.

When the Bank of Canada cut its key interest rate twice this year, borrowers with loans or mortgages linked to the big bank prime rates benefited, seeing their interest rates move lower.
However, if the economic recovery remains on track, many economists expect the central bank's next move on interest rates will be to hike its overnight rate target, which will likely result in higher rates for variable-rate loans and mortgages.

“If you're only looking at the interest rate spread, then it probably makes sense to take a five-year fixed if you think there is any likelihood of the Bank of Canada increasing rates any time soon,” said Jason Scott, an Edmonton mortgage broker with TMG The Mortgage Group.

Files from Craig Wong, THE CANADIAN PRESS
  • Ron Butler on 2015-10-05 12:04:27 PM

    But it's not just spread, it is also penalty. Today more than ever many Fixed Rate IRD penalties punish consumers. VRM penalties at 3 months interest mean a lot in any mortgage decision.

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