Variable rate complaints

Courtesy of Julie Sanderson, AMP

I thought I would share with you something that has been bugging me for a while. I don't mean to offend anyone, but I am starting to get annoyed by all the people bemoaning the fact that, with current market conditions, lenders are no longer offering Adjustable Rate Mortgages at "prime minus x.xx%".

I don't know about you, but I hear this complaint a lot. I hear it in coffee shops; I hear it in the grocery store while waiting in line. I hear it from inexperienced mortgage professionals. I did a little research on the Adjustable Rate Mortgage over the past while and here is what I found:

November, 2006, you could get an Adjustable Rate Mortgage at prime minus .85% (some places even had better discounting)

April, 2007, you could still get prime minus .85%

Great deal, right?

The bank prime lending rate in November, 2006 was 6%

The bank prime lending rate in April, 2007 was 6%

This means the great deal you were getting at that time with prime minus .85% was 5.15%

Now, compare with today's situation:

Bank prime is currently 2.25% and Adjustable Rate Mortgages are priced at prime plus .75%

The rate you get today is therefore 3.00%

Huh?

Anyone think Prime is going up next week? Next Month? Maybe ... next quarter? Maybe ... in 2 quarters? Maybe ... in 3 or 4 quarters? Well the Bank of Canada is signaling that it wants to hold the line on its prime until the end of the 2nd quarter of 2010 according to economists in case you're keeping score.

It's weird how so many people were so excited about the prime minus .85% product when prime was 6%, yet they are indifferent to a prime plus mortgage when prime is 2.25%. The difference is more than 2.0% in rate!

The opinions expressed are those of the author ... as always you should consult a licensed mortgage broker and discuss your own situation prior to making any decisions.