Fixed vs Variable

Economists are predicting the overnight lending rate (which controls bank prime) will increase by as much as 200 basis points (2%) within the next 24 months.  Borrowers are agonizing over the decision – fixed or variable.  The variable rate mortgage is so low today but those rates are not going to last.  So do they lock into a 5 year fixed rate or take a chance?  I have done some calculations and offer the following results.

If a borrower today mortgages $250,000 over a 25 year amortization with monthly payments and chose a 5 year fixed rate of 4.39%, their principal balance at the end of the 5 year term would be $219,089.

If the same borrower chose a VRM at prime less .50% and prime rose by 2.0% over the next 2 years and rose to 5.50% by year 5, their principal balance at the end of 5 years would be $208,845.

The savings is $10,244 over 5 years.  This is pretty significant.  The other advantage to a Variable Rate Mortgage is if the term is broken prior to the maturity date, the penalty is only 3 months interest.  However, a variable rate mortgage is not for everyone.  If you need the piece of mind a fixed rate offers, today’s rates are still very affordable.

 

Welcome to the July issue of the News & Rate Advisor.

Current Mortgage Rates

Variable Rate

1.90%

1 Year

2.60%

2 Year

3.10%

3 Year

3.49%

4 Year

3.99%

5 Year

4.19%

7 Year

4.90%

10 Year

5.49%

Prime Rate

2.50%

* Rates subject to change and OAC.

 

Canadian Qualifying Rate

Jul 2010

Rate

5.89%

Source: Bank of Canada

 

Current Mortgage Rates - 1/3/5 Year Rates

Jul 2010

Jul 2009

Jul 2008

1 Year

3.50%

3.75%

6.95%

3 Year

4.40%

4.55%

7.00%

5 Year

5.79%

5.85%

7.15%

Source: Bank of Canada

 

Nationwide Building Permits

May 2010

May 2009

May 2008

Residential

$3,661,371,000

$2,669,262,000

$3,727,245,000

Commercial

$2,322,123,000

$2,468,803,000

$2,948,191,000

Total

$5,983,494,000

$5,138,065,000

$6,675,436,000

Source: Stats Canada - preliminary figures

 

Current Bank & Prime Rates

Jul 2010

Jul 2009

Jul 2008

Bank Rate

0.75%

0.50%

3.25%

Prime Rate

2.50%

2.25%

4.75%

Source: Bank of Canada

 

 

Average House Prices by Province

May 2010

May 2009

May 2008

National

$346,881

$319,757

$318,761

Yukon

$311,778

$309,039

$304,871

Northwest Territories

$409,490

$337,577

$331,939

British Columbia

$497,371

$465,139

$477,448

Alberta

$364,303

$339,296

$360,284

Saskatchewan

$237,618

$242,829

$233,340

Manitoba

$229,813

$204,276

$203,671

Ontario

$352,523

$322,059

$316,103

Quebec

$252,558

$227,393

$219,886

New Brunswick

$166,057

$166,672

$152,823

Prince Edward Island

$145,113

$149,475

$126,661

Nova Scotia

$218,129

$207,135

$202,569

Newfoundland

$200,649

$200,649

$170,999

Source: CREA - Most Recent Month Reported

 

Average House Prices by City

May 2010

May 2009

May 2008

Yellowknife

$409,490

$337,577

$331,939

Vancouver

$661,745

$583,674

$624,639

Victoria

$515,126

$482,119

$514,100

Edmonton

$340,723

$326,332

$340,499

Calgary

$417,978

$382,632

$418,881

Saskatoon

$294,516

$279,477

$301,527

Regina

$252,053

$263,424

$235,458

Toronto

$446,593

$395,609

$398,148

Hamilton-Burlington

$315,647

$297,132

$293,927

Ottawa-Carleton

$334,360

$312,927

$296,580

Quebec City

$238,594

$211,501

n/a

Montreal

$300,807

$271,386

n/a

Fredericton

$177,822

$176,615

$168,893

Saint John

$173,872

$188,500

$168,158

Halifax-Dartmouth

$264,539

$248,209

$234,692

Winnipeg

$237,697

$208,806

n/a

Source: CREA - Most Recent Month Reported