Is the standard 5-year variable rate mortgage the best way to go in today’s market? Although taking an adjustable term has been shown to allow the opportunity to save on interest, the current variable rates are not anywhere near as enticing as they have been over the past 18 months or so.
Variable rates are driven and set by prime rate and Bankers Acceptance Yields (short term credit investments created by a non-financial firm and guaranteed by the bank). Because these have dropped so low lately, the chances of further falls occurring any time soon are not great meaning that variable rates will not drop any lower unless the lenders cut the premiums charged to prime. Many people feel there is a great chance that we will see this happen, but it may take another 18 months before we can reap the rewards.
What does this mean to you? If you prefer to stick with a variable rate mortgage then instead of the standard 5 year variable rate, perhaps a better option would be to explore a 1 year convertible mortgage. With this option your will be able to swap into a discounted fixed or variable rate at any time without a penalty or you may ride out the full 12 month term and in the end hopefully get a variable product that is closer to or less than prime.
Variable rate mortgages are not for everyone and rates can be subject to change at any time so for more information or to discuss the rates and terms that will best fit your needs, please give me a call.
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