When is the best time to lock into one of these low fixed rate mortgages?

Monday, 24 September 2012 12:45

When is the best time to lock into one of these low fixed rate mortgages?

We have been featuring fixed rate mortgages as low as 3.89% on a 10 year and 2.94% on a 5 year fixed rate. These rate specials come and go as the yield on the Government of Canada 5 year Bond oscillates. Although it is my belief that rates will not move lower than they are right now, they may stay this low for some time, and that means Canadians have to make a decision. Does it make better sense to lock into a short term fixed rate like a 1 year or a 2 year fixed rate and save some money in the short term? Or should one take advantage of the longer term fixed rates now, on the off chance the inflation that everyone is worried about does creep into the market leaving us in a sea of 5%++ mortgage rates. 

There is no one answer fit for everyone.  The answer depends on each person’s mortgage time horizon, propensity for risk, relative loan amount, and annual income, just to name a few variables.

There is a battle between economists who are sounding the alarm bells on inflation, and those who don’t see any inflation risk on the horizon. I find this dichotomy very interesting. I believe that Interest Rates are going to be low for some time, in fact Canada’s inflation numbers come in last week and the Bank of Canada was probably a little surprised to find them lower than expected. At the same time Mark Carney, our Central Banks Governor warns us that we should not be taking out too much debt for fear of inflation and higher rates on the horizon. Is this just “Fed speak”? The type of language that is meant to move a market in one direction or another when actual monetary policy is simply not an option for fear of harming the fragile economy? We have seen this many times before. Occasionally a Central Bank is unable to act to make changes and tighten an economy’s monetary supply so instead opts to speak to the market in an attempt to guide it into the direction it wants it to go. What we are clearly hearing right now is that Corporations should start investing some of the cash they have into the economy and that although inflation is not a factor right now it will be soon and Canadian consumers must be vigilant at managing their debt.

 Looking in from the outside it is hard to say that the Governor of Bank of Canada isn’t doing a great job. He is navigating the delicate Canadian economy through what can only be described as some troubled water, while all the while trying to maintain a course that doesn’t veer to far from the monetary policy of our big lumbering neighbour.

The lower inflation numbers will certainly help the Governor of the Bank of Canada keep rates low and in turn Canadians will see the 2.99% 5 year fixed rate mortgage stick around a little longer. Keeping our rates low helps Canada keep its dollar closer to the American Dollar. A real concern going forward is seeing our Dollar climb any higher than the American Dollar. Our economy is still in a very delicate place. We are heavily reliant on housing prices and new construction as other sectors of the economy are underperforming. A higher Canadian Dollar might be good for the Americans but it can have a devastating effect on Canada’s exports.  

In conclusion, look for rates to stay low for at least the next year.  But be careful playing the interest rate game, sometimes it is worth it to be in a long term fixed rate if only just to be able to avoid all the pesky articles in the newspaper warning of inflation or lack thereof.

 

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