A recent report by BMO Capital Markets examined the question: should consumers choose a fixed rate or variable rate when it comes time to taking out or shopping for a mortgage?
Given today’s low interest rates combined with a positive outlook for the North American economy, the BMO recommends choosing a fixed-rate mortgage. Also, the weak Canadian dollar and possible increases in commodity prices may lead to an increase in general price levels, prompting the Bank of Canada to modify its current policy of a stable overnight rate. This strengthens the advantage of choosing a fixed rate for a term of five years, for example.
According to BMO, the rising yields for Canadian and American bonds are a good indicator of an imminent end to low interest rates. However, as bond yields rise, the cost of funds for lenders also rises, thereby putting upward pressure on borrowing costs for consumers and businesses.
Pending this anticipated increase in interest rates, many banks are now offering attractive discounts on their borrowing rates, including mortgages, right before the most active period on the real estate market.