Two things are clear about the current Canadian housing market. First, interest rates are going to go up. The Bank of Canada governor, Mark Carney, Finance Minister Jim Flaherty, and pretty much anyone involved in the banking industry has been warning of a hike, if not several, potentially before the end of the year. Second, the nation’s major banks have been offering absolutely amazing deals on long term fixed rate mortgages.
Which leads us to the million dollar question – is now the time to lock in a fixed rate or is a variable rate the way to go?
Unfortunately, there isn’t a cut and dried answer. No one can predict the future or when interest rates will actually go up. While many mortgage brokers think now is the time to lock in a long term deal, others feel that rates will stay put until at least 2013, making a variable rate the smartest choice.
As with any decision, there are pros and cons to either side of the coin. Here’s a look at both options.
Why You Should Lock In Now
Fixed rate mortgages are at record lows, some of them barely higher than prime. If you work with a mortgage broker, it’s possible to find some really low rates – like a five-year closed for roughly 3.09 percent. Obviously these deals won’t be around forever. Both Governor Carney and Finance Minister Flaherty have expressed concern at the level of consumer debt Canadians have been piling on during the recession. And of course, the easiest way to curb credit spending is to increase interest rates and encourage consumers to pay off their debt.
The biggest benefits to locking in a fixed mortgage rate today is that it will protect you against uncertainty. The only thing that experts can agree on at this point is that no one really knows what the world economy will look like a year from today. The reassurance of a consistent mortgage payment could be exactly what your budget needs to battle the unforeseen. Plus, if you lock in a best rate mortgage today, you’ll have five years to prepare for increases.
Why You Should Gamble with a Variable Rate
Even though some indicators point to the possibility of increased rates, there are many other factors that call for a rate stay until at least 2013. The reason for this skepticism has to do with the dismal international economy. If the housing market were to experience even a slight increase in the near future, the value of the loonie would rise, crippling exports and slowing any possible growth. Factor in that inflation is practically nonexistent right now, and there’s very little reason for an immediate move now.
Consumers that will benefit the most from sticking with a variable rate are those with a rate at prime less a halt point or more. These rates are no longer being offered by the banks. If you’re smart, you’ll also take advantage of prepayment privileges and voluntarily raise your regular monthly payment by as much as your budget can manage. The extra money will go directly to your principal, which will help dull the pain when rates do increase.
Not sure whether your should lock in a great mortgage rate or stick with a variable? Then contact an expert at FamilyLending.ca. Our mortgage brokers will scour the market in order to provide you with the best available rate.