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This is a good article on variable rate pricing and the reason for the increase on variable rates last week. The underlying theme of the article sort of pushes people towards taking a fixed rate product, however I am still a big fan of taking a variable rate today, if you have the risk tolerance for it.

95% of economists believe that the Bank of Canada will leave interest rates untouched at their next meeting. And, given the horrific state the US economy continues to boast to us, there is a very good chance that rates will remain low for quite some time. This leads me to ask: why would you want to lock in to a higher fixed rate today?

Fixed rates today are as low as 3.49%, whereas you can grab yourself a variable rate for Prime – .60 (2.40%). That is still 119 basis point difference in pricing. If you opt to take a variable at 2.40%, why not set your payments as if you were paying 3.49%? By doing this, you not only shelter yourself from any payment shocks that you may experience if Prime does increase slightly, but you are also paying down your principle balance much quicker, and knocking years off of your amortization. Every payment you make at the 3.49% level, the payment difference on those 119 basis points goes directly towards your principle, interest-free.

Does saving money and paying less interest sound like something that you could stomach? My point exactly.


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