What should you do?

Should you Lock in?

This is an option that needs a strong analysis to determine if it really is your best option?

With an insured mortgage currently at Prime -95 (that’s now 2.25%), and a 5-year fixed at 3.84, that is a 1.59% variance. This is one of the largest variances between variable and fixed in history.

Or, Ride the wave? 

Many will choose to continue to ride the wave of the lower variable rate. I recommend staying the course. I will preface that by saying that I am still searching for that crystal ball so I cannot predict with absolute certainty what will happen next for the economy.

Paying less interest now means more going towards your principal. I’m very pro variable (I’m personally in a variable rate mortgage and don’t have plans to lock in anytime soon). I will (and have in the past) reach out to my variable rate clients if I think that locking in is worth considering, although I do think when we enter a variable rate mortgage, we essentially just need to ‘ride the wave’.

I often hear comments like “well you know what happened in the 80’s” or “my parents paid over 18% interest”. Our Canadian and in fact global economy, along with fiscal policy is very, very different now than it was in the 80’s and 90’s. The effect of a 1% rate increase will have 5-10 times a greater economic impact than it did in the past. I just don’t see a drastic increase to be possible at all. It will cripple our economy.

These recent increases are simply a correction to the radical decreases we had in 2020 because of the global pandemic. At that time, we dropped 1.5% within a month. Now with increased inflation we are at a point where we can start to correct back upwards. However, our economy still needs stimulation and the easiest way to do this is for the government to keep rates low, encourage people to borrow more and spend more. Yes, we need to increase rates to correct from the quick decreases in 2020, but we still need to maintain stimulation for post pandemic long-term growth. For this to happen rates cannot increase too much. We are seeing a very similar requirement for mass stimulus as we did after the housing market crisis in 2008-2009. We need the stimulus to save the economy, and we create this with low rates. With the massive debt levels there is no other way.

My prediction (again however, still searching for that ball!), we will see two more increases to the prime rate. This will mean the prime rate will settle at 3.7% by the end of the year. Rather than panic, we should view this as a correction to curb inflation and bounce back from the extreme decreases in 2020. Anything higher would go too far the other way and undermine the economy.

My advice for now? Ride the variable rate wave and reap the savings. Historically fixed rates have always cost more than variable.

That said, you cannot put a price on “peace of mind”.  So, if the thought of increased rates is a worry or something that causes anxiety or panic then yes, maybe we should chat about you locking in to a fixed rate. In some instances the ‘value’ on locking in is immeasurable if it means it brings you more peace.