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Thinking about converting your variable mortgage? Read this first!

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%.

However, Joan Dal Bianco, vice-president of real estate-secured lending, TD Canada Trust has said “It’s not a mass rush yet, but we are starting to see … people locking in. But variable rates are still so good.” 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%.

“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 bottom line is if you’ve got a deal on your mortgage, why would you give it back?


Source: Gary Marr, Financial Post Published: Saturday, June 13, 2009


Don’t choose between Fixed and Variable. Choose Both! New 50/50 Wise Mortgage Program!

– 50% of mortgage amount is at current 5 year fixed rate pricing (now at 4.49%)
– 50% of mortgage is at current 5 year ARM pricing (now at Prime +.40%)


See previous blog -The Best of Both Worlds- for more information!

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