The case for variable has always been strong, although often a few misconceptions must be addressed to clarify why this is.
- Economic good news is what pushes interest rates up, not economic bad news. When’s the last time the media reported consistent economic good news? When’s the last time rates consistently increased?
Hint: the Bank of Canada has not increased Prime since Sept 2010, despite numerous articles predicting a rate increase being due ‘this year’…every year since 2009.
This leads to the next point:
- The Federal Government just laid down a budget with ~23 Billion $ of deficit spending. (That is like you leasing a fleet of Lamborghini’s and booking a private jet for the family vacation – i.e. spending way more money than you actually have to spend!)
Why is the Fed doing this? Deficit spending is akin to planting one’s foot down hard on the gas pedal, it is all about trying to get the economy moving forward. Economic stimulation.
Which takes us in a circle back to #1 in a way:
- If the Bank of Canada were to increase rates this would be akin to them taking their other foot and planting it down hard on the brake pedal (of the economy). Now, while planting both feet on both pedals is kind of fun when you are a teenager in your parents 1970’s V8 as it gets the tires spinning and smoking…it really gets you nowhere fast and usually breaks a few important pieces of the machine.
4. Prepayment Penalties are devastating in many five year fixed rate mortgages, and 60% of CDN’s trigger one. Click here for the longer story, with math.
Stay variable my friends.
note: the 2-year fixed is also a lovely alternative as well.