Mortgage worries

Question: We are currently looking for a mortgage. Our research suggests that the variable rate mortgage will help us pay down the principal faster in the beginning stages. We also know that we need to monitor the market for rate increases. Our question is: Are there some telltale signs that the rates will increase? – K.N.


How about the Governor of the Bank of Canada saying flatly that rates will go up? That’s pretty telltale, and it’s precisely what David Dodge has repeatedly stated. The central bank is concerned about Canada’s inflation rate, currently running at more than 4% annually. That’s well in excess of the BoC’s target range.

Mr. Dodge has already raised interest rates once this year (by a quarter-point) and is widely expected to do so again in mid-April. Many economists predict that before he is finished, Canadian rates could rise as much as a full percentage point this year.

The interest charged on a variable rate mortgage is reset each month, and reflects current rate movements. So if the Bank of Canada raises rates, the variable mortgage rate will go up as well.

Having said that, I still think ur strategy is sound. However, here’s the best way to approach it. Find out what monthly rate you would pay if you took a five-year term. Then set your payment at that level. The result will be that you’ll be putting more towards your principal each month. Plus, you will have some budget protection if rates rise more than expected. – G.P.