Mortgage rates going up a little.. for now. What should you do?

Happy 150th Canada!  Mortgage rates are going up.  Hooray!  Ok, yes, I’m being sarcastic.

This isn’t the cheery message you wanna hear if you have a mortgage coming up for renewal soon. But, hold on.  What does this really mean?  It’s a great attention grabber.  And now that you’re reading, let’s cut through the bull!

It’s true.  Wholesale fixed mortgage rates have gone up.. around 0.15%.  Yup, that’s it.  Yet, reading all the media headlines would make you believe mortgage rates went up 1.00% or something like that!!   This just isn’t the case.   And Variable rates haven’t changed as of yet.. Mind you, we could see an increase of 0.25% on July 12.. That’s still putting most Variable rate borrowers at 2.25% and 2.40%.. That’s a ridiculously low rate.

Here’s what’s happening…We’ve seen the media take little snippets of the Bank of Canada Governor, Mr. Stephen Poloz’s comments and turn them into front page headlines.  Great for headlines but short of full disclosure.  Here’s a more complete picture.

THE MARKETS REACT…  Unfortunately, investors react to headlines.  The 5 yr Govt of Cda bond yields have spiked up by 0.30% over the last 3 weeks.  This means new 5 yr fixed rate mortgages will go up.  We’ve seen hikes of around 0.15% and this will probably continue for another 0.15% as the markets adjust before pausing. (Rates always go up faster than they come down.  Just like gasoline prices..  incredible how the price of a litre of gas will jump 10cents because the price of oil went up just a few hours ago.. yet, any decrease in oil prices seems to take a week for the prices to change at the pumps).

Here’s the best and most thorough quote by Poloz that was recently printed in MacLeans Magazine:  “Every individual has a different personalized inflation rate, and it is often enhanced by media attention,” Poloz said during testimony at the Senate Banking Committee in April. “You remember last year it was all about the $9 cauliflower, but this year there were no articles about the 69-cent cauliflower. That is the way it is. Now the articles are about expensive gas, but two months ago there were no articles about the inexpensive gas. That is just life. We try to see through those things and these measures help us do that.”

And there you have it.  The Governor is watching and will take action cautiously.  The sky isn’t falling.  Your mortgage payment isn’t going up by $500/mth.. and it’s not gonna go up, up, up and stay up forever.  Rates go up and down.  The govt realizes that we have had 5 years of low mortgage rates at 3%, or lower.  Does anyone really believe they will jack the rates up by 1.00% or 2.00%?   Sure, it’s possible but not likely.

ADDING TO YOUR COMFORT…Borrowers must qualify using the 5 yr bank posted rate.  That’s 4.64% today and it was even higher a few years ago.  That’s right.. If you have a Variable rate mortgage, you’ve already qualified at a much higher rate.

IF YOU HAVE A VARIABLE RATE MORTGAGE..  I’ve seen many so-called ‘experts’ say you should lock into a 5 yr fixed.  They’ve pushed the panic button.  Nothing new here.  Your course of action will depend on your personal situation.  Everyone is different.  That’s why choosing a mortgage and managing it requires on-going advice.

Do a search here.  Look back at my forecasts and you won’t see panic.  Just clear, calm, rational advice based on facts.    Unlike some others….Remember Kevin O’Leary saying you should only take a 5 yr fixed rate mortgage back in November 2012?  Hmm.. how did that work out?  Not well if you listened to him.  There were far better, less costly options.   There is no one-size fits all mortgage.  We all have different needs, goals and objectives.

How about David Madani?  He’s been calling for a housing correction for 8 or 9 years.  Yet, it hasn’t happened and the media are still quoting this guy!!   How much have house prices increased in the last 5, 6, 7 years? 100%?  150%?  How much would you have lost if you listened to him?

And Garth Turner?  He told us to stay away from Real estate since 2008!!  And he’s been ‘warning us for 8 years’!!!.  Thanks Mr. Turner but, no thanks.

HAPPY CANADA DAY!  RATES ARE STILL AT HISTORICAL LOW LEVELS. Strange how no one is talking about this.  The low rates have made it possible to buy a home for so many Canadians.  The dream of home ownership is alive.  There is a certain pride of ownership when you own your home.   One of my clients is senior manager at a major corporation.  He said he likes to see his staff buy and own a home.  He encourages this. There’s a little extra motivation to perform well at work.  They want to own that home.  They want to pay off that mortgage.  Interesting theory.

SPEAK WITH AN UNBIASED PROFESSIONAL.  Get advice from someone that isn’t trying to sell you other products or only their own brand of products.  Speak with an experienced mortgage broker.  No one else can offer you the same selection of Lenders or products.  Maybe this is why over 45% of all new homebuyers use a Mortgage Broker in Canada.

Your best interest is my only interest.   I reply to all questions and I welcome your comments.  Like this article?  Share with a friend.

Steve Garganis 416 224 0114 steve@mortgagenow.ca