‘I’m on a variable-rate mortgage – biggest regret of my life’

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I’ve noticed an uptick lately in talk about locking in variable-rate mortgages to avoid further interest rate hikes. Uh, the time to lock in was eight months ago. Now, not so much.

A reader of this newsletter recently put the question of locking in this way: “I’m on a variable mortgage (biggest regret of my life) that started in February 2022,” he wrote. “I am able to lock in, but this would be at a high rate until 2027. Should I consider doing this, or risk riding the wave knowing that interest rates could rise … as we move into 2023?”

Locking in today is something to consider if you value certainty in your mortgage payments over the months ahead and you’re dead sick of rate increases every month or two. Certainty comes in the form of a fixed mortgage rate in the 5 to 6 per cent range, depending on the lender and the term. Variable-rate mortgages are going for about 5.05 per cent, which represents the prime lending rate at banks and other lenders minus a discount of 0.9 of a percentage point.

We could see variable-rate mortgages go up roughly 0.5 of a point in December, when the Bank of Canada has its next opportunity to adjust rates. If inflation persists, maybe there are more increases in early 2023. But overall, we are much closer to the end of rate hikes than the beginning.

The Bank of Canada suggested as much when it raised its trendsetting overnight rate by 0.5 of a point last week instead of 0.75, which had been widely expected. Inflation, while still strong, has edged lower in recent months. The central bank wants to stop raising rates – it just needs to see inflation lose momentum.

Variable-rate mortgages mirror whatever the Bank of Canada does with rates. Prepare for the risk of a few more rate hikes, and then expect rates to level off for a period before heading lower. It’s very likely that this reader’s five-year variable rate mortgage will end with lower rates than we have today.

Locking in a variable-rate mortgage today is a stress reducer for as long as the Bank of Canada keeps raising rates. After that, being locked in may not feel so good.

Calling Gen Zs and millennial new home owners

Did you buy your home in the last five years? Are you worried that it will drop in value or that your mortgage rates will rise? The Globe’s personal finance podcast, Stress Test, wants to hear from you. If you are still hunting for your first home, and think that falling prices and fewer bidding wars will finally allow you to get into the housing market, we also want to hear from you. Email Roma Luciw, the co-host of Stress Test, for the opportunity to share your story with our listeners. Her email is rluciw@globeandmail.com

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Rob’s personal finance reading list

Playing the inflation blame game

A smart look at the sometimes simplistic takes that politicians have on inflation and rising interest rates.

Bribing the kids to behave

A financial blogger on an interesting concept in parenting – offering to buy your kids things to get them to change their behaviour. “I don’t know if bribing is good or bad in the Parenting 101 handbook, but I’ve been doing a lot of it lately and I gotta say – it works.”

Has the stock market hit bottom?

This message cannot be reinforced too often: Stop trying to time the ideal moment to buy stocks and instead try making regular investments on a monthly or biweekly basis. Always be investing.

Welcome to Alberta

Attracted to Alberta’s comparably affordable housing market? Then you’ll want to check out this report from a newcomer to the province on what it’s like to live there. Two highlights – cheaper houses and no provincial sales tax.

Ask Rob

Q: I turn 70 next year, and I am wondering if there are any tricks I need to be aware of when I convert my registered retirement savings plan to a registered retirement income fund. Any gotchas or tricks to be prepared for?

A: An RRSP must be converted to a RRIF by the end of the calendar year in which you turn 71. Here’s a guide to converting RRSPs to RRIFs that I wrote several years ago.

Do you have a question for me? Send it my way. Sorry I can't answer every one personally. Questions and answers are edited for length and clarity.

Today’s financial tool

A downloadable graphic looking at how you can earn grocery story loyalty points through three different programs – Scene+, PC Optimum and American Express Membership Rewards.

The Money-Free Zone

My new favourite music website is SecondHandSongs, which is devoted to cover songs and obscure originals. Loaded with nuggets like the original version of Going Back, a song that has been recorded by The Byrds, Phil Collins, Bon Jovi, Freddie Mercury, Dusty Springfield and many more.

From the Twitterverse

The fixed-rate pizza. Marketing in an era of high interest rates.

What I’ve been writing about

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- Is it time to give up on investing’s king of disappointment, preferred shares?

More Rob Carrick and money coverage

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