It was a little less than a year ago that the global financial crisis began to hit home, which is to say that mortgage rates spiked higher.
Now, the cost of mortgages is coming down. If you’re buying a home or renewing a mortgage, it’s time to review your options.
Fixed-rate mortgages declined a little last week, but the most dramatic changes can be seen in variable-rate mortgages.  Pre-crisis, variable-rate mortgages came with discounts that ranged from 0.75 percentage points to as much as 0.90 points off prime. By late last fall, crisis conditions prompted lenders to start charging prime plus a full percentage point or more.  Now, some lenders are starting to unwind their crisis-rate premiums.  Can variable-rate mortgages fall back to their pre-crisis lows any time soon?

I don’t think so.  But could the spread get to a little below prime? That could very well happen.  One thing is certain: you need someone on your side to help decide which product is best for you.

So, it’s strategy time. With prime at 2.25 per cent and fully discounted five-year fixed-rate mortgages going for something in the area of 3.9 to 4.1 per cent, you’re got some thinking to do if you’re buying a home or renewing a mortgage.
The variable rate looks tempting.  Sure, the prime is going to rise in the medium term, but it’s expected to stay put until next spring at least.  Some economists say that it will stay put into 2011.  Even when prime does move higher, it will have to increase by roughly 1.75 percentage points to get to where today’s five-year mortgages are.

The risk is there; rates could go up a lot more.  Rates went down four percentage points from December, 2007, through April, 2009.  There is the possibility that they could go back up four.  It could happen.

Variable-rate mortgages allow you to lock into a fixed-rate mortgage, so there’s no reason why you have to ride interest rates all the way up.   Still, you have to recognize that fixed-rate mortgages could be significantly more expensive by the time you decide to lock in.  However, an academic study of rates between 1950 and 2007 found variable-rate mortgages were the money-saving choice over five-year fixed-rate mortgages 89 per cent of the time.

All of this is food for thought.  Needless to say, you need a qualified person on your side to help you make the best decision.  I’m happy to assist and apply this information to your individual case.  Call me!