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Home owners have been saving “big time” with historically low mortgage rates and in many cases, choosing the variable-rate over the fixed-rate mortgage. All time low fixed rates though are making some people ask that imponderable question again….. is it time to lock in with a fixed-rate mortgage?

For example, the Sutton Member Mortgage Program recently lowered the 5 year fixed rate to 3.29%. For some people it is getting hard to resist these low fixed rates. Concerned over inflation expectations when the economy starts to recover and the Bank of Canada’s task of raising rates begins, they want an inflation hedge. They don’t want to get taken to the woodshed by hyperinflation. So what is the right coarse of action? Who knows! I sure don’t, I’m just blogging out loud here. I will say this, the economy is a high wire act to be sure. Volatility is everywhere. Gold hits a thousand bucks and gas took us on quite a wild ride too. Look at the incredible run the stock markets had over the last 5 weeks… Who saw that train coming?

The Canadian government has been printing billions to try and stabilize our economy and these dollars will eventually enter the market place. These are the lowest interest rates on record and are in place to gun the economy. Bank of Canada Governor Mark Carney expects this recession won’t be as long as former recessions, and says “when recoveries come, they come sharply.’ If you recall there were several times in the past we had increases of more than 75 basis points. In 1998 the Bank of Canada boosted rates by a full percentage point to 6 per cent. It was trying to stop the free fall of the Canadian dollar. In 1992 the central bang boosted rates by a dramatic 193 basis points. It is possible the economy is now working it’s way through a trough and it’s just a matter of time before inflation risk = increased mortgage rates. Is the future already baked into the cake by these actions? Well call me dubious, but it seems to me unemployment is still a big issue and I can’t see any reason to panic in the near term. There is still enough slack in the system to fill the circus pants of five clowns. The Bank of Canada and other central banks have argued that there is very little risk of inflation right now, so there is no problem with adding liquidity to the economy. They are more worried about deflation. It’s a balancing act and the timing will be critical. Do they really know which way the pendulum will swing? Just remember, these are the very same people that caused this economic mess in the first place. Lets hope they get it right.

We can still have a wild ride ahead of us then…. more turbulence and more risk. Risk is the key word. If you are not comfortable with risk then a fixed-rate mortgage might be right for you. Individual circumstances like debt levels and the amount of equity in your home will be a deciding factor. Discussing your circumstances with a mortgage specialist is indeed a good idea and perhaps now is a good time to start. Here are a few questions to ask yourself that may help. How do you sleep at night? If you can’t sleep because you are stressed out over budget problems then the money you might be saving by the added risk won’t do you any good anyway. Are you comfortable with risk or would you rather have security? Is your life too busy to watch mortgage rates? Will you be savvy enough to pick the bottom or will it turn out like that stock you should have sold a year ago when trying to pick the greedy top. If you like to control your finances, hate surprises and want some stability and peace of mind, a fixed rate mortgage is worth consideration. Knowing your mortgage payment will remain the same for the next 5-10 years and that you have locked in an historically low rate might might feel good too.

I read somewhere that the all-time low on record for any mortgage term over four years is 5.00%, way back in 1951. Gee, I can even say I wasn’t born yet. That 5.00% was for a 25-year term. 5-year mortgage data only goes back to 1970. I received a flyer in my pigeon hole at the office a few weeks ago from a bank offering a 10 year term at 5.25%.

One thing is certain about mortgage rates – they go up and down like a toilet seat. I for one will not forget the 80′s? “Burn me once, shame on you, burn me twice, shame on me”

Just a little something to thing about.

All The Best ,

Tom.

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