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BMO says fixed interest rates may be the better deal amid possible rate hike

TORONTO - It may be time for homeowners to start thinking about locking into long-term mortgages.

Although variable mortgages have historically proven more cost effective than five-year fixed rates, a new study by the Bank of Montreal (TSX:BMO) suggests the tide may be turning.

BMO chief economist Douglas Porter and senior economist Benjamin Reitzes say the bond market has loudly warned over the past year that the era of low interest rates may finally be drawing to a close.

Porter and Reitzes say that as bond yields rise they will put pressure on borrowing costs and long-term mortgages.

They add that mortgage rate hikes would have the greatest effect on those who are already financially stretched and it is those homeowners who would benefit most by locking in as a hedge against significant rate increases.

Currently, a five-year fixed mortgage rate from one of the big Canadian banks hovers over three per cent, with variable rates ranging below that.

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