David Dodge Says Rates will stay low until 2015 (Nov 28th 2009)
Interesting revelation from the former Governor of the Bank of Canada. If you believe the latest article, it seems that it would be an easy decision to choose a variable rate over a fixed rate. Economists and forecasters, base their statements on historic trends and what they know about local and international economies. You should always make the best choice based on the best information available during your decision period. If deciding to go for a variable rate mortgage, have no regrets if David Dodge's forecast was out to lunch, because so many unknowns can trigger a different outcome. Simply be prepared to handle any contingencies. That being said, if you enter into a variable rate program, make certain that you have the financial resources to weather a change in the market, either today or 3 years from now. If you are buying a home and the current variable is very enticing, you really need to do the math...what happens if that rate doubles. A 2.25% rate increase would double the current rate and you would be faced with a payment twice the size of the one you started with. Ah, but I was told I could lock in a fixed rate if the prime starts to jump...too late to grab the low fixed rates offered earlier. You will often have an option of staying the course and hoping it doesn't go up any further or choosing a fixed rate that you simply would not have considered earlier. David Dodge is a smart man and he helped Canada maintain it's strong financial position in the world. You need to decide if David Dodge's prediction matches your financial ability.
Examples- On a $300,000 net mortgage, here are today's choices
Best variable 2% (3 year term .25 under bank prime) $1023.78/month (Principal and Interest) (lowest overall payment)
50/50 plan 3.2% (Half fixed and half variable, mitigating variable fluctuation risk, somewhat) $1222.02/month (P&I)
5 year fixed 3.99% (today's best limited time rate special) $1362.24/month (P&I) (lowest 5 year fixed rates payment)
10 year fixed 5.4% (Today's best 10 year rate special) $1629.54/month (P&I) (Fact: The average historic rate is 7.5%)
