Edmonton Real Estate Investor: Canadian mortgage rates forecast

May 31, 2011 was the day anyone holding a variable rate mortgage was waiting for with bated breath. Mortgage rates looked like they were going up but now it looks like we may have a reprieve from rate increase for the short term due to global unrest.

“The Fed is not even dreaming of raising rates in the next 12 months,” Benjamin Tal

We've got a rate lock on a mortgage for September 2011, the big dilema, wheter to go variable at great cashflow and higher stress or lock in at a great steady rate for 3 years. We've chosen to lock in on this property. There were many factors but sometimes you get sick of the ups and downs of variable rates even though they do better in the long run. In the end it's all up to you.

VIDEO : Peter Kinch on the Bank of Canada's decision to not increase mortgage rates on May 31, 2011.

Bank of Canada won't raise interest rates to cool housing - "Existing-home sales are up 73 per cent year-over-year, while prices have climbed nearly 20 per cent as buyers take advantage of historically low interest rates to finance purchases.

Those who fear a bubble worry that many people are taking advantage of cheap money to buy homes they wouldn't be able to afford once rates rise, leading ultimately to a crash in prices.
Mr. Lane said the bank understands the concern, but it uses its lending rate to keep inflation in check for the whole economy and the housing market is “only one of several factors” that influence inflation."

Those who are riding the variable rate can pad their bank accounts a little longer. Keep your eye on the interest rate though and lock in before the ride starts keeping you up at night.

This Globe and Mail article tries to answer the question burning in every mortgage owners mind, "Should I stay variable or lock into the fixed rate?" They end by saying it's up to you. Well, what should you do?

Canadians are enjoying the lowest interest rates in history. A few of my mortgages were at 1.65% for a while providing incredible cash flow after all other expenses were paid. But around the net and on the news we're hearing that rates will rise probably in June or maybe earlier. It all depends on the economy's health.

Generally speaking variable rates will do better for you in the long run. Now, the gap between variable and fixed is so large, you might get huge increases in rates and the amount your mortgage costs you every month.

There is no clear cut answer but wait and see. It all depends Canada's economic health in early 2010.

If the global economy recovery looks strong:

“could force the Bank of Canada to raise interest rates aggressively, driving variable mortgage rates higher, but leaving fixed rate choosers unscathed.”

but if we are all still wobbly:

“Low and steady inflation, taken with a fragile global economic recovery, points to the Bank keeping its commitment to hold rates steady through June 2010 (conditional on the inflation outlook),”. “There is also some risk to locking in as fixed rates could fall if the economy performs worse than anticipated.” Mr. Douglas Porter and Mr. Benjamin Reitzes BMO economists

As for me I can hold on until spring 2010 because the savings we are getting now at these rates are phenomenal. The best thing to do is find out your bank's stand on penalties for locking in mid-term and how they affect you in the long run.

If you're riding the variable rate it can be scary sometimes, it can even keep you up at night. With interest rates at historical lows people are starting to wonder when and how high rates will go. Peter Kinch, The Number 1 Mortgage Broker in Canada, has insight on what to expect in the short term and in the next 2 to 4 years.

He points out that interest rates are at their lowest ever which is attracting buyers to the market in turn firming up prices. Housing affordability is very good right now so take advantage while you can.

He also expects rates to go up 3% in the next 2 to 4 years.

Watch the full interview here on CTV News.

Small piece of trivia Mr. Kinch lived in the same city I do in Japan and we have mutual acquaintances - Six degrees of separation!