Posthaste: This mortgage could pay off if Bank of Canada slashes rate in tariff war

financialpost.com:

With Canadians on tenterhooks over Donald Trump‘s looming tariff war, now might not seem to be the best time to take a chance on a variable-rate mortgage. 

Then again, maybe it is, says one economist.

“With borrowing costs more likely to fall than rise — and by a lot in a possible trade war — a floating rate mortgage could pay off,” said Sal Guatieri, senior economist with BMO Capital Markets, in a recent report. 

The Bank of Canada has cut its interest rate from 5 per cent to 3 per cent, and with the prospect of more cuts ahead, variable-rate mortgages are gaining in popularity.

About 1.2 million mortgages will renew this year, most of them at a higher rate, said real estate company Royal LePage in a report out this morning.

Almost 30 per cent of those homeowners said they would choose a variable rate on renewal, up from 24 per cent now on a floating rate. Sixty-six per cent said they would renew on a fixed-rate loan, down from 75 per cent now locked in, the Royal LePage survey found. 

“For homeowners looking to reduce their monthly payments or pay down their principal faster, variable-rate mortgages have become an increasingly attractive option in light of today’s declining rate environment and the likelihood of further cuts this year,” said Royal LePage chief executive Phil Soper.

If the Bank of Canada cuts 25 basis points in April and again in July to 2.5 per cent as BMO expects a “floating rate could pay off handsomely,” said Guatieri.

BMO estimates a borrower putting 10 per cent down on a $500,000 home over 25 years could save an average of 40 bps a year on a variable rate over a fixed. That would work out to savings of over $100 a month or more than $6,000 over five years.

If “a trade war torpedoes the economy,”