Robert McLister·
Mortgage Rate Trends
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Variable Rates to Rise?

We’re hearing more talk from lenders that variable mortgage rates may be on the rise (soon).  Prime – banker’s acceptance spreads have narrowed and are squeezing lender margins.  As a result, variable rate mortgage lenders are considering reducing their discounts from prime rate to compensate.

Prime-Bankers-Acceptance-Spread

If you need an approval for a variable-rate mortgage, it might not be a bad idea to submit your application to a mortgage planner today.

Robert McLister
Robert McLister is one of Canada’s best-known mortgage experts. A mortgage columnist for The Globe and Mail, interest rate analyst and mortgage planner, Rob has been covering Canada's mortgage market since 2007.
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13 Comments

  1. Little question
    If the margin is getting narrower for variables, isn’t it getting bigger for fixed? If so, doesn’t that compensate for lenders?
    Or is it more complicated?
    Nicolas

    Reply

  2. Hi Nicolas,
    Banks are kind of like a bakery. Just because margins are wide on rye bread, it doesn’t mean that (with wheat prices at all-time highs) bakers shouldn’t raise prices on white bread to make selling white bread worth their while.
    Same goes for variable rates and fixed rates. Each product has it’s own independent revenue requirements with the lenders.

    Reply

  3. Hi,
    I read the postings on this site every day, great site. I have a question regarding your opinion on the topic of rising rates. I have done tons of research and understand that no one really knows what will happen with prime rate but do you personally think that variable is the best way to go for a 5 year mortgage or would you lock it in? How high do they really think prime will go in the next year or two?
    Thanks

    Reply

  4. Hi Ashley,
    Thanks very much for reading. It’s the million dollar question and that’s the literal truth. You could make millions if you knew the answer to where rates are going. All you’d have to do is take a position in bonds and hold it based on this knowledge.
    Unfortunately even the Bank of Canada doesn’t know where interest rates will go long-term. As a result, the best thing to do is to look at your personal financial situation.
    Do you have a lot of equity in your house?
    Do you make a good and steady income, such that you have enough to cover a potential 20-30% increase in your monthly payment?
    Do you have money banked away for emergencies?
    If you answered “no” to any of these questions you might want to consider a fixed mortgage instead of a variable.
    That said, you’d be best served consulting with a mortgage planner who can advise you based on all the factors of your situation. We’d love to recommend a variable because we know that the statistics back them up, but they’re not for everyone.
    (We always have to note that information here is not advice. Always consult a mortgage professional before acting on any information you read online.)

    Reply

  5. Hi
    I have been a regular reader of your blog. I am happy to say that i have just bought my first house with variable rate of prime minus 1.
    I have a question as you cannot predict the prime rate going up or down. How do you go for locking your rate. Is it wise to do with the same bank or shop around? It will be great idea to write a blog on this topic of locking down the mortgage as many are going for variable mortgage.

    Reply

  6. Hi Vishnu,
    Thank you for reading and thanks for the question.
    Locking in at the right time means you have to predict when fixed rates will start rising long-term. Most fixed income hedge fund managers with the best data and technology, and million dollar salaries can’t get the timing right most of the time. What chance does mom and pop have?
    All I can tell you is how some people “try” to do it:
    * They look at interest rate charts
    * They listen for the Bank of Canada to start talking about raising rates
    * They listen to their favorite economist
    * They watch if the big banks start increasing posted rates after a long downturn
    Do any off these things work consistently? Most academics will suggest not. Many others suggest just letting your variable rate float. It all depends on your financial situation and risk tolerance.
    Per your other question, you can lock in your variable with your current lender. Or you can refinance to a new lender. It depends on your penalty, who has the best rate, etc.

    Reply

  8. Hello,
    With the market going the way it is, with prime currently dropping my question is what mortgage would be the best for us when we close on our house at the end of september? Variable at 3.9 or a fixed rate at 5.45?? Our mortgage per month is only about 20% of our take home income.
    thanks
    Ryan

    Reply

  9. Hi Ryan,
    Like investments, suitable debt strategies are always specific to the individual. We and most other mortgage planners will ask a lot of questions before recommending a gameplan. These questions don’t take long, but they do ensure we recommend an intelligent strategy that fits all of your objectives.
    The best bet is to call any professional mortgage planner, or contact us, for specific recommendations.
    In general, however, here are some options to consider:
    * A hybrid mortgage (with both fixed and variable components) at deep discounts. It’s a good way to be interest-rate diversified.
    * If you have a lot of equity and strong finances, a good variable-rate mortgage (perhaps with a fixed payment option) might work as well.
    * If you’re highly risk adverse, or have little equity and/or fluctuating income, there are some great fixed-rate deals out there at 4.99% or better.
    Good luck!

    Reply

  10. Hi There
    I Have Fix 4.95 rates Mortgage right now for next Three year and I got an offer for 4.00
    variable rates and there is penalty for $2400 is good to move to variable rates or stay with fix rates
    Thank you very much
    mubarak

    Reply

  11. Hi Mubarak,
    Thanks for the note. The best advice is to call a mortgage planner to discuss your situation. There are a lot of variables that affect the answer to this question.

    Reply

  12. variables is the death of the U.S market. lock in low.
    look at the 80’s what was it 15% or 18% or something.even 10 would lose your house.

    Reply

  13. IMHO, if you lock now, say 5 years, there is a far greater chance that when you have to renew, the rates will be at that double digit you mentioned. I am riding my variable for another year or so and getting the discount. I would rather have the option to lock in when rate starts to go up than have no choice but to renew at double digit. I don’t follow the crowd who are fear driven. I am not an expert by all means, but this is my view.

    Reply

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