BMO Mortgage Rates

BMO Mortgage Rates

 

Bank of Montreal sent out a detailed report on their take on the very debated topic of which is better, fixed or variable rates.  They started the discussion with this statement “Fixed or variable decision much closer to call, While variable-rate mortgages continue to beat out fixed-rates when it comes to cost savings, the gap between the two is likely to become closer due to the economic environment.’  BMO is taking the stance that a variable rate mortgage over a 5 year term will save you more money than going with a 5 year fixed generally.  BMO economists Douglas Porter and Benjamin Reitszes state,

Variable rate products have proven the better option 82 per cent of the time since 1975, Porter and Reitzes wrote, and forecast that variables will continue to remain cheaper than fixed rate mortgages.

 

On the other side, they these same two BMO economists argued the economic recovery - and the expected rise in interest rates next year - has potentially caused “one of those rare periods when a fixed rate turns out to be the superior choice.” It also pointed out that negotiated rates (as opposed to posted rates) make fixed and variable products closer to call.

 

The graph that they are using to determine that Variable rate has outperformed the fixed rates 82% of the time, is below.

One of the problems with this graph is that very few Canadians pay posted rates on fixed mortgages.  This was an argument made by a mortgage website Canadamortgagetrends.com.  They did a different a graph that better represents fixed vs variable rates. 

 

This graph is based off of posted – 1.5%.  With these numbers there were at least six periods in recent history when fixed rates beat variable rates at prime.  One thing we have to keep in mind is that when prime rates go higher generally we can get prime – products which would again change the graphs completely. 

 

Maybe this new Bank of Montreal report has something to do about them not being extremely competitive with their fixed rates.  Below is BMO current mortgage rates a

 

Type	Term	Annual Percentage Rate
Fixed Rate	6 month (convertible)	4.650%
Fixed Rate	6 month (open)	6.450%
Fixed Rate	1 year (closed)	3.700%
Fixed Rate	1 year (open)	6.800%
Fixed Rate	2 year (closed)	3.950%
Fixed Rate	3 year (closed)	4.450%
Fixed Rate	4 year (closed)	5.290%
Fixed Rate	5 year (closed)	5.780%
Fixed Rate	6 year (closed)	5.780%
Fixed Rate	7 year (closed)	6.800%
Fixed Rate	10 year(closed)	6.950%
Fixed Rate	18 year (open)	8.950%
Variable Rate	3 year (open)*	3.050%
Variable Rate	5 year (closed)*	2.250%

 

If you had good credit and a very good relationship with your BMO Mortgage specialists they could probably offer you closer to the 4.50% on a 5 year fixed and similar discounts on all the other fixed rates.  My current rates are

 

As you can see, on the fixed rates BMO current mortgage rates are nowhere close to being competitive but on the variable rates they are the same if not very close.  Maybe this is one reason they are encouraging people that variable is the way to go?  Either way my advice stays the same on the debate on which is better, fixed or variable.  It all depends on you.  No one can argue that best mortgage rates are at an all time low for both the fixed and the variable.  If you are looking for piece of mind that your payments will never increase during the term then fixed is the way to go.  If you want to get today’s lowest interest rate, even if that means having a higher rate any time during your term then variable is probably going to work the best.  Either way it is up to you….