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The variable rate is based on the bank's prime, which is almost based on the Bank of Canada's overnight rate. I say almost because of the second last rate drop by the BoC where the banks didn't match it completely, but I really don't think the banks would ever independently lower prime independent of the BoC.

The BoC's rate right now is 0.5%, and there is some degree of expectation that this month they will drop it another 0.25%, which should theoretically lower the bank's primes from 2.5% to 2.25%. But beyond that, can it go any lower? What is the effect of the BoC actually going to 0% interest? Is it just a little bit more cash savings for the bank, or would it throw the system out of whack as there would be no reason to seek outside financing or interbank financing? But let's say it does go all the way to 0%... isn't that a definate wall? If the BoC went to -.25%, banks would have no need to lend money, they would just borrow an infinite amount from the BoC and have infinite free profit :)

In short, I can't see rates coming down any more than another half point, and to be honest, even if the BoC did go to 0, I would bet the banks won't match that last quarter point because they know the BoC has no more pressure to put on them, especially since their mortgage buyback auctions are now going unfilled. This means that we could be at the absolute lowest interest rates for variable ever within a week. If the spread between variable and fixed is constant, that would also mean that theoretically fixed rates will never be lower than they are at that point as well.

To me, unless there is a way variable could go lower, that would indicate that unless you expect interest rates to stay constant for a few years, the end of the month may be exactly the conditions where 10% of the time fixed mortgages save more money.
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