So should you take a variable or fixed rate mortgage?

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kelowna-mortgage-brokerSo should you take a variable or fixed rate mortgage?

The short answer in most markets, is variable rates, in the long run they have been the cheaper way to go. This in fact has been essentially true for the past 30 years.

There is however an underlying reason for this lucky event. The western economies have been in a long-term rate decline for those 30 years, albeit, with the occasional blip. Compounding the variable advantage was the intensive rate competition of 6 years ago when lenders were offering prime minus rates on their variable products.But that was then and this is now. We are today in a rate market place that is offering 5 years rates at 3 percent, which coincidentally is the long term inflation rate. (I say that in historical terms we are currently in a deflationary economic environment) what this means is that any long-term rate in this range will, over time, be a low rate.

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The current interest rate environment is not sustainable, at some point all of the monetary stimulus that every government in the world is pushing, is going to kick in and then watch out for big rate increases.

When is this going to happen? If I knew that I’d be making billions on Wall Street but I can assure that the trillions of dollars being pumped into the world economy are going to hit at some point and when they do the result will be a shockingly fast upward bump in rates.

So our advice today is contrary to the advice we’ve been giving for the last 25 years. We now recommend that if you don’t intend to repay your mortgage over the next ten years, then you should lock into a fixed rate term, maybe even a ten-year term which at sub 4% seems like a super bargain to me.

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