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Fri Oct 23, 5:12 PM% N6 R& X+ n, w
By 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. W i1 k& h& f6 E Q
) g* c+ t! G2 |+ U& {! B" YThe 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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3 q4 K" R4 ^+ L& q8 e) OA fixed rate locks the borrower into a set interest rate for a certain period of time. - y8 u) T+ N+ l. R5 V
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That gives many borrowers peace of mind knowing how much money to set aside each month for their mortgage payment. * ^+ E% X d5 }% Y
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Variable rates change along with interest-rate moves.
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BMO 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.
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9 H" x. X5 ?8 `, d" i8 hBMO 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.
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0 n4 r9 J' G9 V# b; uThe bank added that the current interest environment is similar to both of these periods. " G+ G, A4 p) R8 @
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"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.
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% I, C% \7 ^! s"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."
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Canada has been in a long-term declining rate environment since the early 1980s, the bank suggested. + X2 [* U- b2 X5 a9 n# Y1 ]
4 c( | C' o) `, \As 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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