One mortgage broker seems to think so. Here’s why.
Rob Carrick - Globe and Mail
Jas Grewal’s reaction to the recent runup in interest rates was to abandon a sweetheart of a variable-rate mortgage in favour of a safer, but more expensive, fixed-rate mortgage.
Mr. Grewal, you should know, is a mortgage broker. A mortgage broker who sees the potential for much higher rates in the future.
“I’m fairly conservative and I’m locking in,” said Mr. Grewal, of the Mortgage Centre in Toronto. “Rates are starting to spike and I think they’re going to continue.”
Variable-rate mortgages like the one Mr. Grewal has are unaffected by rate increases over the past couple of weeks. But fixed-rate mortgages are on the rise, and he’s worried about a pervasive trend toward higher borrowing costs. He may have a point — it may be time to bail on that variable-rate mortgage and lock in for the longer haul.
Ultralow rates are a big reason why there are signs of life in the housing market. Sales activity and prices have been rising this spring; the average resale price of a home sold in May was nearly $320,000, according to the Canadian Real Estate Association, bringing prices back to where they were before last fall’s financial meltdown.
But rates are ticking up again. Five-year mortgages with a juicy discount applied are now going for about 4.3% after a pair of two recent rate increases that lifted them off historical lows in the 3.7% range. Meanwhile, the prime rate, used as a base rate for variable-rate mortgages, continues to sit at 2.25%.
Mr. Grewal’s concern is that rising inflation will send short-term interest rates soaring to a point where a five-year mortgage at today’s rates will look like a comparative bargain.
Statistically, variable mortgages are a better deal than fixed mortgages 88% of the time, Mr. Grewal said. “But I think we’re in that 12% zone right now.”
Whether you’re thinking of locking a variable rate into a fixed-rate mortgage or of renegotiating a mortgage you took out years ago to benefit from lower rates today, you have some thinking to do about rising borrowing costs.
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