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Fri Oct 23, 5:12 PM
* \- L N* V2 w5 E4 A6 J# v$ p) mBy The Canadian Press
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TORONTO - Fixed mortgage rates may help you feel secure in your budgeting, but the Bank of Montreal (TSX: BMO.TO) says the more volatile variable rate mortgages will save you money in the long run.
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/ S+ T) q7 }, I$ q# {The bank put out a report Friday showing that, over the past 30 years, variable-rate mortgages have been more cost-effective about 82 per cent of the time. That may come as a surprise to some after studies have shown many Canadians prefer a fixed-rate mortgage.
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A fixed rate locks the borrower into a set interest rate for a certain period of time. ; d3 |) o9 v7 j7 ]* R( V( c7 X
7 Q6 s1 K5 E; X$ v( t4 m) Q& WThat gives many borrowers peace of mind knowing how much money to set aside each month for their mortgage payment. $ i# y2 r8 \. r' W; |6 M
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Variable rates change along with interest-rate moves.
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% c! y# E% X& x# L1 ?2 O' GBMO said the Bank of Canada's overnight lending rate is at its lowest possible point now, which could mean there are fewer benefits to a variable rate in the foreseeable future. # m4 j, G- u! ?5 `% l
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BMO highlighted two historical periods when fixed rates were considered beneficial - in the late 1970s and late 1980s - and both were just before interest rates started rising again. ' Z/ S) ~" O. {' n9 \
; p% D9 O5 J7 {) KThe bank added that the current interest environment is similar to both of these periods. ( ^- H/ m- X* I/ s- h2 K, o" ~: x1 h1 [
$ O9 R1 ?4 e7 M: u& f"Short-term rates are at extreme lows and pressure is likely to build for higher rates in the year ahead," said deputy chief economist Doug Porter in the report. 6 s) q B' t3 L, x0 i) K
8 M9 t4 |& _/ T% r9 Z"The question of whether to lock in to a longer-term fixed mortgage rate or stay in a variable rate has become an increasingly complex and important issue." 6 w ?$ t4 A: ~1 a7 V! R
8 G" w: J. m! P; M, {0 R* Z" \Canada has been in a long-term declining rate environment since the early 1980s, the bank suggested.
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$ X, V( ^% i; l( XAs a result, the spread between five-year fixed mortgages and variable mortgages has been pushed wider in recent years, and is now near an all-time high. |
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