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July 20, 2021

Are mortgage rates headed even lower?

By Gordon Powers, Sympatico / MSN Finance

With interest rates so low and the housing market stabilizing, anxious homeowners are worrying about whether or not to lock in their mortgage payments.

The rate-watching game has been a little more uncertain lately as rates seem to have reached a point where they seem to have little room left to fall. So, given current bargain basement borrowing costs, should you go with a variable or fixed rate mortgage?

Robert McLister, who pens the Canadian Mortgage Trends blog, created this chart to illustrate what your mortgage payment would have been had you opted for a variable-rate mortgage based on prime any time over the last 18 years.

After each low was made, the average rate over the next five years wasn’t that much higher, he says. If you picked the worst possible time to go with a variable-rate mortgage, your rate over the following five years would have averaged just 1.23% more than the rate you received on closing day. 

Even though we might see a blip, most economists expect rates to remain low through the end of the year  or so, then rise by as much as 3% as a recovering economy produces an increase in inflation.

If the prime rate were to drop a bit further and you were working with a variable rate, you'd see the decrease in your mortgage rate almost immediately. But that doesn’t seem too likely right now. Plus the current financial mess means that the premium on variable rates is higher than the historical norm

On the other hand, if you lose sleep worrying about the impact of every blip in rates on your monthly budget, then a fixed rate mortgage is still the way to go. 

Either way, looking at history this way will help you judge whether it’s worth paying an additional 1.5% or more for today’s 5-year fixed mortgages, McLister maintains.



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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...

James HaversJames Havers

James is the senior editor of MSN Money living in Toronto. He has worked for the Nikkei Shimbun (Tokyo), canoe.ca, AOL.ca, Canadian Business and other publications. Havers turned to journalism after teaching overseas.

Jason BucklandJason Buckland

The modern-day MC Hammer of money, Jason can often be seen spending cash that isn’t his with the efficiency of a Wilt Chamberlain first date. After cutting his teeth as a reporter for the Toronto Sun, he joined the MSN Money team with...