A lot of people are suddenly wondering if they should lock in fixed rates on their variable-rate mortgages. A trigger was last weeks rather substantial jumpsin Canadian fixed-rate mortgages and news reports warningthat growing inflationary pressures entail an uptrend in fixed-rate mortgages.
But academic studies, notably those from Professor Moshe Milevsky at York University, show that variable rates on mortgages are better over the long run. You will save on interest costs at least 75% of the time, and knock a year off your amortization period.
Besides, variable rates on mortgages are tied to the Bank of Canada’s discount rate (thorough prime-lending rates) and I don’t see the central bank hiking much when inflation is already quite low and the economy could be in recession (GDP growth last quarter was negative). There is thus a good chance variable rates will not be going above fixed rates during this cycle. If they do, it shouldn’t be for very much or very long.