# Should I lock in my mortgage interest rate?



## Fisherman30 (Dec 5, 2018)

I've got a variable rate mortgage on my house, and I keep hearing talk of inflation around the corner. Would it be smart to lock in at a fixed rate at this time? Thanks!


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## Ponderling (Mar 1, 2013)

Might be. Other option is to compare the fixed and variable spread, stay variable and save the difference presuming one lasts and use those savings to periodically make additional principal payments.


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## ian (Jun 18, 2016)

I saw a 5 year rate at 1.89 advertised today.

I would be very tempted to lock in at the rate AND increase my mortgage payment/reduce the amortization period. If I could lock in for longer at that rate I would consider it.


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## Tostig (Nov 18, 2020)

Ponderling said:


> Might be. Other option is to compare the fixed and variable spread, stay variable and save the difference presuming one lasts and use those savings to periodically make additional principal payments.


In my opinion, fixed rates are a marketing scheme to make borrowers think they are buying security. In fact, the spread between fixed and variable is to protect the lender from potential lost profit if rates increase.

Think about it. Check the spread between the fixed rate and the variable rate. If rates do increase, by the time you need to renew on the fixed rate, it'll still be that much higher than the variable. Variable is always playing catchup.


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## fireseeker (Jul 24, 2017)

Rob McLister of RateSpy is consistently clear and insightful about the mortgage market.
You may find his latest post valuable.


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## Tostig (Nov 18, 2020)

fireseeker said:


> Rob McLister of RateSpy is consistently clear and insightful about the mortgage market.
> You may find his latest post valuable.


I've read articles like this before. It's all hypothetical. The debate is as old as anything else in economics.

Many years ago, I've tried but failed to find historical year to year mortagage rates for variable and fixed-rates of 1 to 5 years for a continuous period of ten years when rates are rising.

The only example I have is my own experience from the mid 1980s to 2007 over several properties. I never had anything longer than 3 years. And when it finally occurred to me to go variable, I saved a ton of money even when rates were going up.


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## doctrine (Sep 30, 2011)

ian said:


> I saw a 5 year rate at 1.89 advertised today.
> 
> I would be very tempted to lock in at the rate AND increase my mortgage payment/reduce the amortization period. If I could lock in for longer at that rate I would consider it.


You could find rates at 1.29% just a few months ago, and definitely rates below 1.49% at big established banks. It seems to me like those rates have moved up closer to 1.89% like you say.There are always some misers who can squeeze lower rates for sure, but to me the trend is moving one way.

So still incredibly low rates available, but that 50 basis point jump is completely in line with the jump in the 5 year Canadian government bond yield.


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## ian (Jun 18, 2016)

We went variable in the past, but only when our financial situation was such that we could easily withstand an increase. The beauty of variable is the lower rate and the fact that one can always lock in.

But frankly, if I had a large mortgage and a few months ago an institution offered me 5 years for 1.29, or 10 years years for a little more I would have jumped at it. A financial opportunity like this does not come around often. Savvy people know when to grab hold of an opportunity. Even if it meant paying a small penalty to end a current mortgage.


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## Mortgage u/w (Feb 6, 2014)

Stick with variable. Why would you want to pay a premium and lock yourself in for a longer term??


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## Bruner (Mar 4, 2021)

Here is an interesting take on "buying the interest rate". It represents a point of view I hadn't initially considered, especially in the Ottawa Market.
Buy the Interest Rate or Not?!


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## Fisherman30 (Dec 5, 2018)

So, my variable rate is prime - 0.5%. Prime mortgage rate at TD is currently 2.6%, has been since about June, and I would say is likely to increase. So I am paying 2.1% for my variable mortgage. It seems they are able to lock me in for 5 years starting today with no penalty at 1.8%. I'm thinking it's not a bad idea. Had I waited until July or August to sign my variable mortgage instead of June, I would have got a better deal. Hindsight 20/20.


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## Mortgage u/w (Feb 6, 2014)

Fisherman30 said:


> So, my variable rate is prime - 0.5%. Prime mortgage rate at TD is currently 2.6%, has been since about June, and I would say is likely to increase. So I am paying 2.1% for my variable mortgage. It seems they are able to lock me in for 5 years starting today with no penalty at 1.8%. I'm thinking it's not a bad idea. Had I waited until July or August to sign my variable mortgage instead of June, I would have got a better deal. Hindsight 20/20.


What makes you believe that prime will go up? If anything, TD should be the last to increase since they’ve had their prime 15bps higher than everyone else. The discounts being offered on variable rates is dropping, currently -1.00%. Fixed rates have increased by 40bps in the last two weeks. 
I suggest sticking with your variable. Never lock in with bank.


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## Fisherman30 (Dec 5, 2018)

Mortgage u/w said:


> What makes you believe that prime will go up? If anything, TD should be the last to increase since they’ve had their prime 15bps higher than everyone else. The discounts being offered on variable rates is dropping, currently -1.00%. Fixed rates have increased by 40bps in the last two weeks.
> I suggest sticking with your variable. Never lock in with bank.


I see your point, but currently with my variable rate, I've got prime - 0.5%, which is 0.3% higher than they're offering to lock me in for the next 5 years. TD prime rate would have to drop at least 0.3%, and stay that way for at least 5 more years. Is that likely to be the case?


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## Mortgage u/w (Feb 6, 2014)

Fisherman30 said:


> I see your point, but currently with my variable rate, I've got prime - 0.5%, which is 0.3% higher than they're offering to lock me in for the next 5 years. TD prime rate would have to drop at least 0.3%, and stay that way for at least 5 more years. Is that likely to be the case?


It may be the case. No one knows. All I know is it’s been over a decade people have been saying exactly what you are saying and rates did the exact opposite. 
Before locking in, how many years left on your current term? 
And you lock in and rates go further down, what next?


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