A new 1 year variable rate product has recently come onto the market which is being offered by one of our broker partners, True North Mortgage. This is interesting as the most popular closed variable mortgage term has historically been the 5 year, with a 3 year increasing in popularity over the last year as well.

The 1 year product is being offered to take advantage of mortgage shoppers who believe that variable mortgage rates with larger discounts to prime will come back into the market. This is the view of True North Mortgage’s President, Dan Eisner, who in our last Mortgage Rate Outlook Panel that, “It is a New Year and banks want to kick it off with lots of mortgage volume. Thus, more banks are going to discount their rates off of prime. That’s good for home buyers!”

Before the economic crisis happened last year, variable rate mortgages were being offered with large discounts to prime (the Prime Rate is currently 2.25%) such as Prime – 0.65%, and that’s how there are some lucky home owners out there paying under 2% on their mortgage right now. As the banks liquidity started drying up and capital was hard to come by, the discounts disappeared and variable rates were being offered above prime. As Canada started heading out of the recession and liquidity returned to the banking system, many lenders are now looking to re-gain market share lost over the past year.

Variable mortgage rates with discounts to prime are back, with the best variable rate product with a 5 year term on RateSupermarket.ca currently being offered at Prime – 0.30% or 1.95%, and the 3 year variable at 1.85%

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So the thinking with the 1 year variable is that if you believe larger discounts to prime will come back to the market in the next year, you can take out a 1 year variable rate for now, and then switch into a longer variable rate term next year without a penalty, rather than waiting for 3-5 years. The 1 year product comes with:

So this might be an interesting option to discuss with your mortgage planner and as always be sure to speak to a a mortgage expert before making any final decisions.

Best of luck and you can compare the best variable mortgage rates in your area now.

BMO Economic Research published a report entitled Should I Stay (Fixed), or Should I Go (Variable)? This is a topic that many of our visitors have and we get emails about it, as well as conversations in the “Ask an Expert” thread in our discussion forums.

Here are some of the highlights:

Pro – fixed rates

Pro – variable rates

The verdict

This is pretty much the same conclusion that Dr. Milevsky came up with during his Fixed vs Variable research although, there is always the caveat that this is a very unique time in history, and this may again be a time to lock in rates. Be sure to speak to a mortgage professional before you take on your next mortgage and see what’s best for your personal situation.

The Bank of Canada’s rate announcement is tomorrow and many of the expert expect the Federal Bank to hold their target for the overnight rate steady at 0.25%. This means variable rates should, in theory, remain steady for the next little while. However, we’ve seen some variable rates come down to as low as Prime – 0.10% for a 4 year variable closed rate, with a 45 day quick close. This is the first variable rate offered below prime that we’ve seen for months and is great news for mortgage shoppers. Could this be a sign of confidence in an economic recovery from the banks? Or simply that inter bank lending is returning to normal and banks no longer need to hoarde cash.

We’ve also seen fixed mortgage rates come down in the past week as shown below. This is mainly attributable to the fact that the Government of Canada 5 year bond price has increased over the past week by 2.80%, reducing the yield, and enabling banks to drop 5 year rates. After speaking to a few brokers in the last day or so, they believe rates will come off a bit more in the near future. Again, it’s difficult to time these things, and if you do need a mortgage soon, it’s probably best to look into it now and get pre-approved, rather than trying to time the absolute bottom of the market.

You can keep track of the latest mortgage rates here, or through our Ratewatch service, which will send you a quick update whenever the best mortgage rates on the site change.

We’ll look out for the Bank of Canada announcement tomorrow and post the results as soon as we get them.

Bank of Montreal (BMO) was the first bank to drop their variable mortgage rates after the Bank of Canada’s interest rate cut today, April 21, 2009. They cut their variable rates by 0.25% passing on the savings to customers right away, and these new rates are effective tomorrow, April 22, 2009. The new rates are as follows:

You can see how BMO variable rates compare against the market and Compare mortgage rates here.

BMO quickly moved to lower their mortgage rates as a result of the Bank of Canada announcement this morning. The changes are as follows and are effective tomorrow, March 4, 2009.

This is great news for variable mortgage shoppers, as well as for other mortgage looking for a mortgage

Go compare mortgage rates now.