The interest rate gap

The day after the bank rate was reset last week, there was a paragraph in the Globe and Mail's story that jumped off the page at me. "For consumers, the most tangible result is fixed-rate mortgages are not dropping as fast as central bank rates. Mortgage broker ... reckons he will be able to find a variable-rate mortgage at about 4.75 per cent compared with a fixed-rate five-year mortgage of about 5.84 per cent. The spread, now almost a full percentage point, used to be only a quarter or a half point." (The original article is at http://www.theglobeandmail.com/servlet/story/LAC.20080305.RATES05/TPStory/?query=bank+rate+AND+mortgage)

Why should you as a home-owner subsidize the losses the banks have taken due to the credit crisis south of the border. The spread, when it was a quarter point probably made a variable rate a better deal for many people; at 1.09 points (using the numbers in the newspaper story; 'your mileage may vary,' since the rate for either a variable or fixed mortgage will depend upon your credit rating, etc.), why would people go for the fixed rate?

Just wondering.

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