Holders of variable rate mortgages can rest easy, for now.
The Bank of Canada held its trend-setting policy rate at one per cent last week, and most economists believe there will be no increase until at least December and possibly next spring.
"We think the Bank of Canada is done for this year. We think it's going to keep its rate at one per cent ... but it will start to think of gradually raising rates again late in the first quarter of next year and continue through the rest of the year, says Robert Hogue, senior economist at RBC Economics.
"We're looking at a 125-basis-point (a 1.25-percentage-point increase over the) next year."
The perennial debate over whether to take a fixed-or a variable-rate mortgage has increased as the gap between the two rates is narrower than it has been in the past.
"The five-year (fixed) rates are an incredible bargain. We're looking at about 3.69 per cent, sometimes a little bit better," says Lois Volk, mortgage broker with Invis. "On a variable, they're looking at prime minus 0.7 per cent, so with prime at three per cent that's 2.3 per cent, which is quite a bit lower than that five-year rate."
Volk says even with the narrowing, variable-rate holders can make considerable savings in the short term, particularly if they make larger monthly payments than their current rate dictates.
"I generally encourage them to pay based on about four per cent, so they'll be paying off a lot of principal, plus it won't be such a shock when the rates do start to go up," says Volk.
Fixed rates (which are based on bond yields rather than prime) have already started to increase, and are expected to rise in the new year.
"With respect to bond yields, we're looking at the five-year to rise 115 basis points over the next year," says Hogue. "It's not a dramatic rise but a rise nonetheless. With ... housing, ... interest rates will go up, but gradually."
"Right now is a great time to consider a variable rate, as long as (the homeowners) don't have a weak stomach and they're not too anxious," says Stass Panagakos, a mortgage broker at Mortgage Intelligence. Historically, variable rate deals have been cheaper overall, but risk-averse clients prefer a fixed rate.
"(If fixed rate payments are) $200 more each month (than payments at the variable rate), they will tend to jump on the fixed rate wagon ... even if they know the possibility of savings could be in the thousands over the next five years," says Panagakos.
"It's just their frame of mind ... how secure they are, how their debt ratios are. Someone with a bit more flexibility, who has a little more disposable income, will tend to consider the option of going to a variable."
-- Postmedia News
