July 7, 2017
Is It Better To Stay Variable or Convert to Fixed When There is Talk of Rising Rates?
Most good/flexible variable rate mortgage will allow one to convert to a fixed term but the conversion rate is for whatever a mortgage lenders best fixed rates are at the time of conversion; and usually for whatever the remaining term is or longer.
Fixed rates have already gone up a bit as this usually happens in anticipation of the Bank of Canada raising rates as well as a few other reasons. Economists are predicting a 50 to 60% chance they will increase the Prime lending rate by .25% on July 12th. Some others think they will do it later this year. Any further increases would most likely be done a little at a time as well but no one knows for sure.
There's also been many times in the past 7 to 8 years where there's been lots of talk about the end of low rates which did not come true. It may come true this time but, again, no one ever knows for sure.
Many economists say that the government is not interested in raising rates to fast or by too much as too many Canadians have a lot of debt and it would put a lot of people in trouble.
The Bank of Canada meets 8 times a year so technically, although it's very unlikely, they could raise the Prime lending rate each time they meet. They would usually only raise is .25% at a time unless the economy and inflation were running very quickly which neither of them are currently. So it would take at least 3 or 4 moves upward in their Prime lending rate before most variable rates would be over what a 5 year fixed rate is currently.
Historically people who've taken variable rates and stayed in them have paid less interest over the life of the mortgage. This might not be true moving forward but history does have a way of repeating itself.
It's a very personal decision and all has to do with your comfort level as well as your own financial situation.
Hope this info helps you make your decision one way or another. As always I'm always here to answer any questions anyone has around this or help in anyway I can.