There’s been a lot of articles lately about rising mortgage rates causing hardship for home owners with mortgages.  I had several conversations last week on this topic with people who know (or found out) I’m a mortgage broker.

There’s a simple answer.  If you’re in an adjustable or variable rate mortgage and the rising rates are keeping you up at night… locking in may be right for you.  Should you do it?  I can’t say because I don’t know your personal situation, but even if I did, this is a decision you must make.  But let’s see if I can help with some background info.

First things first, remember why you chose your variable or fixed to begin with.  If you chose variable/adjustable was it just the rate or did you factor in the possibility of a changing personal situation?  Many mortgages don’t go beyond 3 years in a term despite best intentions due to babies being born, relocating for work, refinancing to renovate or consolidate higher interest debt, separations, etc.  And those IRD (Interest Rate Differential) penalties to break a term can be high!  But–if your general situation hasn’t changed, perhaps locking in now isn’t the right move–just like it wasn’t before.

I find the simplest way to view a fixed rate mortgage is you’re paying insurance to make sure your rate and monthly repayments don’t change over the term.  You’re usually paying extra compared to a variable rate.  If rates go up, well done, you may have saved money.  If rates go down, too bad, but at least you had your peace of mind with your consistent repayments.

Over time variable rates consistently save money vs fixed rates.  Check out this graph I just made on Ratehub (https://www.ratehub.ca/historical-mortgage-rates-widget) which compares 5-year fixed rates (blue) vs 5-year variable rates (red) since 2006 (seems as far back as their data goes):

Is the peace of mind worth paying extra?  One of the most important things for your health is a good night’s sleep–so maybe.  Will you sleep just as well if you lock into a 5-year fixed now and rates come down next year or 2024?  That’s where the decision is up to you!

If you’d like a chat to see where we think things are going or how it applies specifically to you just let me know.

By Dean Kimoto, Mortgage Broker