Tide Turns on Variable Mortgage Rates

Many in the public have been surprised at the rate increases in variable rate mortgages this past month. For myself and some others in the industry, the only surprise was that it took so long to do it. It has been a year in which lenders have been talking about how they were making minimal profits and even losing money on these variable rates.

Now, the new question is the same old question as ever; do I choose a variable rate or a fixed rate mortgage? Considering many mortgage lenders rates increased by up to .5% over a few weeks, this is a good time to re-evaluate that question.

Currently, most 5 year fixed rates are at approximately 3.5% (although I have a great special for qualified borrowers). Variable rates are now mostly between prime -.3% and prime -.4%, which means an effective current rate of 2.6%-2.7%. Therefore, you are likely looking at a current premium of .8% if you take the fixed rate. It is my belief that this will last for 1 1/2 years approximately before the prime rate will start to see further increases. I do not believe that we will see decreases in the prime rate still, even with the threat of recession.

For the short term, variable rates will definitely be advantageous. However, fixed rates have never been this low as far as I can remember, and I do not think they can really go much lower. If you get a variable now with the intention of locking in later, the rate you lock in at will likely be significantly higher than what you can get right now.

Overall, I think if there is any time that it is better to get a fixed rate, now is the time.