(Oct 14, 2023)
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In a world where financial stability often hangs in the balance, making the right decisions regarding your mortgage can be a pivotal moment in securing your economic future. As of March 2022, we embarked on an unprecedented journey through a rate-hiking cycle, witnessing the prime rate surge from a modest 2.45% to its current towering 7.20% – a jaw-dropping 193% increase. The ripples of this upward trajectory have undeniably reached Canadian households, leaving many grappling with unforeseen financial hardships. However, history often reveals a silver lining in the cloud of uncertainty. In the 1980s, when interest rates skyrocketed by 82%, they subsequently plummeted by 27% within a brief five-month window, followed by another remarkable 33% decrease over the subsequent five months. So, as we stand where many believe to be at or near a peak in prime rate today, currently perched at 7.20%, a glimpse into the past suggests the possibility of a descent, and if mirrored to the trajectory of the 1980’s that could equate to a descent to approximately 5.25% in the next five months, and if history persists a subsequent drop to 3.5%. Skeptics may dub it “too good to be true,” but what if history continues to write a similar script? Whichever way you examine it, this scenario appears far more enticing than the prevailing fixed-rate offerings in the market today.
Let’s put the current mortgage market into perspective. At the time of publishing this blog post, a competitive 5-year fixed-rate mortgage, particularly for high-ratio borrowers, stands at 5.84%. This rate, while offering stability, leaves you contractually locked into your rate and payment, regardless of potential market shifts. In contrast, a competitive variable rate mortgage, set at Prime – 0.95% (based on the current Prime Rate of 7.20%), presents a compelling alternative. Now, consider the historical precedent we’ve explored, where interest rates in the 1980s saw a steep climb followed by a remarkable descent…today that same 27% drop from 7.20% would equate to about 5.25% and after that, another 33% drop to ~3.47%. If this historical trend holds any weight, the variable rate mortgage becomes a tantalizing prospect. In light of these comparisons, the variable rate mortgage demands your attention as a prudent choice in today’s ever-changing financial landscape. With history as our guide, this option is not just intriguing; it’s a serious contender worthy of your consideration.
Moreover, when considering a variable rate mortgage, it’s crucial to keep in mind a few key features that set it apart from fixed-rate counterparts. Firstly, variable rate mortgages offer the flexibility of allowing you to lock in at prevailing fixed rates at any point during the mortgage’s term, without incurring any penalties. This unique advantage enables you to adapt to changing market conditions or your personal financial situation with ease. Additionally, the break penalties associated with variable rate mortgages are typically fixed at a straightforward three months’ worth of interest. Unlike fixed-rate mortgages, where penalties may be calculated based on an interest rate differential, variable rates mitigate the complexity and potential financial risk associated with these penalties. These features not only enhance the appeal of variable rate mortgages but also underscore the importance of exploring this mortgage option.
Wondering if a variable rate mortgage makes sense for you? Call or text Marko Gelo right now to secure your discounted variable rate at 604-800-9593, or Click Here to schedule a free, no-obligation phone call with Marko. You can also call Marko on WhatsApp.
DISCLAIMER: The contents of this blog post are derived solely from my personal analysis and perspective. I must emphasize that I am not an economist, nor have I received this information from any external source. My analysis is based on historical Prime Rate data for Canada, and I’ve conducted manual calculations to develop the hypothesis presented here. While I sincerely hope that my conclusions, drawn from an examination of data charts and graphs, hold true, it is essential to clarify that these findings are not verified, confirmed, or endorsed by any authoritative source or expert in the field. The intention behind this blog post is purely to encourage individuals to explore their mortgage options fully. Rather than dismissing variable rate mortgages outright, I advocate for their consideration in the ever-evolving financial landscape. Making informed choices is of paramount importance when it comes to such significant financial decisions.
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