In my blog article published on April 8, 2010, I strongly supported the use of variable rate mortgages to save interest costs. Now, there has been over a year after the initial article. Have I changed my stand on the choice of the two types of mortgages in Canada?
Let’s re-visit my reasoning noted then:
- Canadian economy is improving, but not in its best shape yet. Trust what you feel and see, not what you hear from those who are paid to speak.
- Inflation is still manageable by Bank of Canada. Like in the US, Canadian economy still needs low interest rates.
- Canadian dollar appreciates more than expected. If this trend continues, our export is going to be in big trouble and we will continue to loose jobs.
These reasons still stand true in light of the current economic environment with further evidence supporting this recommendation.
- “Banks say low interest rates are encouraging customers to stick with less profitable variable-rate mortgages rather than higher-margin fixed ones. And rates aren’t seen rising soon.”
Further more, “… and the margins on the fixed rates are a lot more.”
These quotes are from an article published by Financial Post.
Banks are not making higher profit margins when consumers choose variable rate mortgages than fixed rate mortgages. And, this is why the big banks want you to move to fixed rate mortgages!
- The European and the U.S. debt situations are not over. The U.S. economy has not added much strength – unemployment rate is now at 9.2%. Where do these trends push us to? A slower economy this year and next.
Any economy is not isolated to its own in this highly connected world. Canada is no exception – higher or longer growth without negative impacts from outside is not possible. This is not to blame others for our slow economy. Internal economic stimulus may not last into next year – further reducing economic activities in Canada.
Slower economy will translate slower increase of interest rates by the Bank of Canada. To conclude, choosing variable rate mortgages may well still be the best option to save some hard-to-get cash!
Martin Shao is the President of Valueland Mortgages. Forward your mortgage questions to AskUs@valueland.ca or visit Valueland’s website at http://www.valueland.ca