Many buyers of Vancouver real estate ask this question and it is not an easy one to answer because no-one can predict interest rates.
The average prime rate from Jan 1, 2000 to Dec/09 was 4.94%, with a high of 7.50% and a low of 2.25%. Generally speaking strong economies and high interest rates are tied. Today we are in a weak global economy so we are experiencing low interest rates. The question remains when will interest rates rise and how quickly?
If you assume Prime will increase by .25% every 4 months, beginning in Jan’11 and given that the 3 year ARM is tied to Prime, then a 3 year fixed rate would be cheaper for the consumer. You can now get a 3 year fixed rate at 2.9% and a 3 year ARM at 2%. But at the end of 3 years the ARM rate would be 4%, given the .25% rise every 4 months and prime would be 5%, which is its 10 year average.
In the above scenario the client with a fixed rate would benefit in a climate with rising interest rates. The ARM client would benefit in a climate of fixed or falling rates.
Have you been in this situation? If so, what decision did you make and why?
Have a mortgage question? contact alma pasic , mortgage broker at verico wealth wizard financial
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contact maggie, an experienced realtor since 1981, when you’re ready to buy or sell
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