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Personal Investor: Spring brings a mortgage rate chill

After years of being warned that interest rates are on their way up, it seems Canadian homeowners are finally getting the message. A survey this week from CIBC finds respondents are not only leaning toward locking in their mortgage rates, but locking them in for a long time.

The survey comes on the heels of an earlier CIBC survey that shows 57 percent of Canadian homeowners would choose a fixed-rate mortgage if they were to acquire, refinance or renew a mortgage today. Thirty percent said they would choose a variable rate mortgage and risk paying more when rates eventually rise.

The new poll finds 74 percent of homeowners who choose to lock in would opt for a medium-term or longer-term mortgage.

Here are the highlights:

  • 47 per cent would choose a medium-term mortgage (three or five years) if they were to acquire, refinance or renew a mortgage today
  • 27 per cent would opt for a longer term (seven or 10 years)
  • 19 per cent would go with a shorter term (one or two years)

The banks tend to push the idea of locking in for as long as possible because – well, it makes more money for them. The longer the term, the higher the rate. Since they are big and oozing money they can afford to borrow at lower rates, and make their killing on the difference between what they pay and what you pay.

They, along with their economists, have been telling us to lock in for years as rates languished and those in variable rate mortgages (who didn’t take heed) benefitted from rock-bottom borrowing rates.

Beating the bank is rare and you can only do it for so long. Those still in variable rate mortgages, especially those with big mortgages, run the risk of getting seriously stung by higher mortgage payments when rates start to rise. By then the banks – being the banks – will have closed the door on those low fixed rates and the fish will be in the kettle, as they say.

As of Friday, the mortgage broker website RateHub showed the best 5-year variable rate at 2.05 percent and the best 5-year fixed rate at 2.5 percent. You have to ask yourself is a 45 basis point short-term saving worth five years of sleeping well at night?

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