CanWest News Service -The consensus is that mortgage rates are going to go up, says CMHC’s Richard Corriveau

CALGARY — More than three-quarters of Canadian homeowners, and those seriously considering buying a home, have indicated that now is the time to lock in their mortgages, says a national survey.

Seventy-eight per cent of respondents say mortgage rates won’t be dropping, so locking in will avoid any further increases, says a CIBC report.

“If you have been waiting for mortgage rates to bottom out before locking in, then yes, absolutely, this is the time to do it,” says Richard Corriveau, senior market analyst for Canada Mortgage and Housing Corp. in Calgary.

“The general consensus is that rates will be up by at least three-quarters of a per cent by the end of 2005.”

The increase would place the five-year borrowing rate at 7.37 per cent, less any discount that can be negotiated with lenders.

“However, research still shows that short-term mortgages — variable and one-year — will still pay off because short-term money is still cheaper than longer term,” says Corriveau.

Fifty-nine per cent of those surveyed expect rates will go up through next year, says the CIBC survey.

It marks a change from six months ago, when only 34 per cent expected increases. The survey says another 24 per cent don’t see rates changing, while six per cent see them falling.

“With interest rates expected to head north, that natural instinct is to lock in,” says Paul Mims, CIBC vice-president of mortgages and lending.

“But if they’re comfortable, homeowners may be better off over the longer term with a variable rate mortgage.”

However, a majority of the survey respondents disagree with the variable rate suggestion.

About 61 per cent believe the best mortgage strategy to follow is to take a fixed-rate mortgage at a slightly higher rate.

Nearly seven out of 10 homeowners with a mortgage currently have a fixed rate, while 26 per cent hold a variable-rate mortgage.

“Of those who are planning to obtain a new mortgage or renegotiate an existing mortgage in the next year, 44 per cent intend to switch the rate type or the term they have right now,” says Mims.

The slight increase in rates serves as a reminder for people to consider their mortgage options, says Andrew Moor, president and CEO of Invis, one of Canada’s largest independent mortgage brokerages.

But Moor also suggests variable rates may be the way to go.

“With mortgage rates on the rise, Canadians may be tempted to lock in a fixed-rate mortgage,” he says. “However, it’s important to realize that the prime rate would have to rise considerably over the next five years to make the current variable rate options unattractive.”

© The Vancouver Province 2004