Globe Investor asked the question today whether it’s “Too soon to bet against a variable-rate mortgage?”
In the story, Preet Banerjee writes, “Academic studies indicate that the best predictor of future interest rates is the current yield curve. Based on that, interest rates are going to be pretty low for the foreseeable future. Add in some shallow discounting off prime for variable-rate mortgages and it’s easy to see why almost everyone is opting for fixed-rate mortgages these days.”
A study by Professor Moshe Milevsky found that variable-rate mortgages, between 1950 and 2000, were the better option versus fixed alternatives, and he felt “that the original study’s conclusions still held”, Banerjee wrote.
Ultimately though, Banerjee notes that “We’ve had a secular decline in interest rates for the last 30 years,” and analysts have been predicting a rise in interest rates for two years. Since those increases have never happened though, anyone who signed up for a fixed-rate mortgage in that time would have lost out over the variable-rate mortgage alternatives.
Summing up, Banerjee answers his question with another question: “Assuming your cash flow could stomach it with no problems, is fixed as much of a slam dunk as some believe?”