Are rates going to go up?

Hands down, without question, nothing even comes a close second...this is the question I hear the most. I’m not sure if it’s that people really wonder or if they just want me to say “no” or “I don’t think so” to give them some sort of comfort. My standard disclaimer is always that nobody can predict with absolute certainty, and then I launch into my opinion. By nature I’m not a good liar, in fact I’m probably honest to a fault. I’m certain there are a lot of people out there in my position who would tell potential clients whatever it is they want to hear, in order for them to become clients. I’m not sure why anyone would do that but everyone has their own approach and that just isn’t mine. My approach is always complete honesty, providing my own opinion and for the most part always erring on the side of caution. The advice I give borrowers always provides the risks involved in a very clear way so an informed decision can be made. It’s a long-term relationship and I can’t understand why anyone would compromise that relationship with dishonesty. Short-term thinkers I suppose.

Back to the topic at hand, rates. Are they going to go up? The question to me isn’t if but when. Of course they’re going to go up. They’re at record lows and the economy is showing some positive signs. Sure, we might see fixed rates stay around the same level or dip a tiny bit through a competitive spring market but by and large, they are going to go up. The Bank of Canada yesterday announced once again no changes to their Overnight Rate of 0.25%, which in turn causes Prime to remain at 2.25%. This is not a surprise since the B of C has been saying since 2009 that they intend to leave things the way they are until end of Q2 2010. The reality is that the Real Estate market has been driving the economy for the better part of a year so to increase rates would be like pouring water on the fire that’s providing you with enough warmth to stay alive. Now that other economic indicators are showing positive signs, what do you think is going to happen at the end of Q2? My money is on the B of C increasing their overnight rate. I’m not talking by a lot, they’ve never raised it by more than 0.25% so it’s a good bet that’s what will happen. I believe they will need to be very cautious about increases since too much too fast could be very detrimental. As for fixed rates, different economists have been saying different things about fixed rates for some time now. Some say they’re going to increase before the B of C increases the Overnight Rate and some say it won’t be until the Fall but the common theme is the word “increase”. Everybody agrees rates are going to go up but nobody knows when.

My advice to anyone who prefers variable mortgages has been to take advantage of your low payments now, put some of that savings aside because rates are going to go up at some point and having a little extra put aside will help. For those who favour fixed rates, if you’ve been sitting in a variable waiting for the right time to lock into something fixed or are considering refinancing, consider doing it sooner rather than later. I’m not saying you need to do it tomorrow, but waiting too long might cost you. Same goes for people with renewals in the next few months, make sure you get your rate holds now!