Gary Marr, Finan­cial Post

Would you like to pay an extra $300 per month on your mort­gage? Not likely.

That hasn’t stopped a num­ber of Cana­di­ans, with the deal of a life­time on a variable-rate mort­gage, from switch­ing over to a more expen­sive fixed-rate prod­uct and pay­ing the extra freight.

A fear of ris­ing rates is dri­ving the rash deci­sion. But if you’ve finally man­aged to pin your banker to the ground, why on Earth would you let him off the mat?

More than 28% of Cana­di­ans have a variable-rate prod­uct tied to prime, accord­ing to the Cana­dian Asso­ci­a­tion of Accred­ited Mort­gage Pro­fes­sion­als (CAAMP). If you nego­ti­ated a deal before Octo­ber of last year, chances are you are now bor­row­ing money for as lit­tle as 1.35%. That’s based on deals that at one point saw the banks giv­ing 90 basis points off prime. Prime is now 2.25%.

The aver­age sale price of a home last month in Canada was $306,366. Based on a 25% down­pay­ment and a 25-year amor­ti­za­tion, your monthly pay­ment would be $962.61 at 1.35%. Con­vert that to a five-year fixed-rate term and you’re prob­a­bly going to have to con­sider a 4% mort­gage rate and a monthly pay­ment of $1,289.04.

Rates are ris­ing fast. Most major banks upped their five-year rate by 40 basis points this week, although dis­coun­ters were still offer­ing just over 4% this past week.

“It’s not a mass rush yet, but we are start­ing to see… peo­ple lock­ing in. But vari­able rates are still so good,” says Joan Dal Bianco, vice-president of real estate-secured lend­ing, TD Canada Trust. She stops short of ques­tion­ing why a con­sumer would pull out of these “deals” that are no longer avail­able on the market.

Try to get a variable-rate mort­gage today and the best you can prob­a­bly hope to get is 60 basis points above prime, or 2.85%.

The land­scape changed dra­mat­i­cally in Octo­ber dur­ing the credit crunch. As the Bank of Canada low­ered rates, the major banks reluc­tantly low­ered prime because of the mas­sive amount of cus­tomers with variable-rate prod­ucts nego­ti­ated under the old, higher terms.

“Bonds yields are going up rapidly and peo­ple are start­ing to real­ize the rates are going to go up,” Ms. Dal Bianco says. Throw in the fact the Bank of Canada used the weasel word “conditional”(on infla­tion rates)when it promised not to raise rates until June, and you can under­stand why some peo­ple think today’s record-low prime rate might not hold.

But if you’re some­place between 60 to 90 basis points below prime, the rate is going to have to go up pretty fast to jus­tify lock­ing in today at 4%, even though that is just slightly above the all-time low hit last month for a five-year term.

“I don’t under­stand why you would lock in,” says Jim Mur­phy, chief exec­u­tive of CAAMP. “Sure, if they start to rise, but [Bank of Canada gov­er­nor Mark] Car­ney says they won’t rise, so you’ve got another year at that prime-minus rate.”

Don Lawby, chief exec­u­tive of Cen­tury 21 Canada, says even when rates do start to increase, they are not going to jump sig­nif­i­cantly right away. You are not going to get 4% on a fixed rate again, but double-digit rates seem unlikely. “The only logic to lock­ing in would be for some­one very sen­si­tive to any rate change and they just want to be secure,” Mr. Lawby says.

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Related posts:

1. Mort­gage bor­row­ers pushed to lock in
2. Mort­gage hold­ers well pre­pared for rate hikes
3. Bank of Canada Cuts Inter­est Rate to Low­est Ever
4. Ris­ing rates one more rea­son to take time, seek advice before get­ting a mortgage
5. Real estate prices and mort­gage rates head­ing up