What’s going on with my variable mortgage?

Quite a few important changes have been taking place in themortgage industry. This week, I will focus on closed variable rate mortgages.If you presently, have a variable rate mortgage, you’re looking to refinance ormaybe even buy then you should know that the variable discounts have beenshrinking. A variable rate mortgage is based on the Bank of Canada lending ratewhich currently rests at 1%. The Bank of Canada is responsible for printingmoney and managing interest rates. Great job, I know! The Bank of Canada meetsevery three months to discuss amongst other things whether to increase,maintain or decrease that 1% lending rate. Each bank turns around and adds 2%to the 1% giving 3% to which they can loan to the public. Depending on the typeof loan you require such as variable rate mortgage, a personal line of credit,secured line of credit and even some bank car loans are all based on thevariable. 

Each of these variable-based loans can have a discount or anaddition added to the 3%. In other words, if you need a car loan through yourbank then they could charge you 3% plus 3% giving 6% and that addition of 3% iswhat follows you for the life of your loan or term. Currently, the closedvariable mortgages rest at 3% minus a discount. This year we have seendiscounts on average at minus 0.75%. Here is what I mean by the discounts areshrinking whereas the Bank of Canada lending rate of 1% has remained stableover the last few quarters.  Whataccounts for this change, good question? Some reports suggest that the last jobfigures in the US have bumped up the cost of borrowing but my gut tells me thatmany Banks have lost by giving deep variable discounts and now they are tryingto recover.

Based on all this is variable still the way to go? That’salways a personal choice. I would say that many clients are still requestingthe variable but my advice is simple. You know yourself best. If you keep yourfinances organized and relatively in-tune with the economic buzz then thevariable might be for you.

If you have any specific questions you’d like to discuss innext week’s article please feel free to email me.