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Fixed mortgage rates are now a better deal for homebuyers than variable rates, says a new report by BMO Capital Markets.

Why? The bank says Canada’s historically low interest rates have closed the gap between five-year fixed mortgage rates and variable ones. And then of course there’s the improving economy.

“…at long last, an improving economic backdrop has markets anticipating rate hikes from both the Bank of Canada and US Federal Reserve in 2015,” the report reads.

All this, says BMO, has “tilt the balance in favour of locking in at this stage.”

The bond market too, says the report, has sent out loud warning signals over the past year that the era of low interest rates may finally be drawing to a close.

“As bond yields rise, the cost of funds for lenders also rises, ultimately putting upward pressure on consumer and business borrowing costs, including long-term mortgage rates. So, even if variable rates take some time to climb, we may not see such low fixed rates again any time soon.”

BMO concludes that the historically low rate, combined with a shorter 25-year amortization, would go a long way to strengthen a borrower’s financial stability.

“For those who don’t have much financial flexibility, and would run into difficulty from a pronounced upswing in interest rates (typically first-time buyers), any potential extra cost for peace of mind now appears to be a price well worth paying,” the authors say.

Of course, not everyone agrees with the bank’s assessment. Vince Gaetano, principal broker with, told the Globe and Mail:

“Banks are very good at scaring variable-rate clients into locking in prematurely. This took place last year when fixed rates spiked temporarily only to fall again. At the same time, variable-rate discounts have increased.”

For their part, BMO does concede that “the decision still depends on the individual.”

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