Personal Finance

Will BoC increase rates again? Time to lock in? now that wage growth is at 3% and IMF revised upwards our economy again?

  • Last Updated:
  • Oct 18th, 2017 7:47 pm
[OP]
Member
Dec 28, 2015
408 posts
116 upvotes
Westmount, QC

Will BoC increase rates again? Time to lock in? now that wage growth is at 3% and IMF revised upwards our economy again?

Should I lock in mortgage rates? It seems the endless parade of good news is making the BoC keep raising rates and the big jump in wages may result in more rate hikes?

Is now the time to finally go from variable to close? I have a 600k mortgage and make around 240k a year household income and currently on a variable mortgage

They keep raising our economy and rates keep going up and I was thinking if now is time to lock in as it appears rates will continue to go up with the economic news coming out past year

First
https://www.theglobeandmail.com/report- ... e35779415/

Then

http://business.financialpost.com/news/ ... -2-in-2018

And now this with wages

https://www.reuters.com/article/canada- ... SL2N1MH0ET
Last edited by MrWhiteCoffee on Oct 11th, 2017 12:57 pm, edited 1 time in total.
20 replies
Deal Addict
May 31, 2007
4239 posts
1376 upvotes
MrWhiteCoffee wrote:
Oct 11th, 2017 12:57 pm
Should I lock in mortgage rates? It seems the endless parade of good news is making the BoC keep raising rates and the big jump in wages may result in more rate hikes?

Is now the time to finally go from variable to close? I have a 600k mortgage and make around 240k a year household income and currently on a variable mortgage

They keep raising our economy and rates keep going

First
https://www.theglobeandmail.com/report- ... e35779415/

Then

http://business.financialpost.com/news/ ... -2-in-2018

And now this with wages

https://www.reuters.com/article/canada- ... SL2N1MH0ET
Depends on what kind of fixed rate you can get right now. Historically variable or 1 year discounted term tend to win. But there is a time (maybe now?) when fixed wins. Really almost impossible to time but you can make an educated guess.

Also your household make a lot of money, so I assume you will not have a problem paying increased payment if rates go up.

You last link says 67% chance BOC hike in Dec (probably true so long as GDP doesn't die like July did)
Bloomberg says 76% chance The Fed increases in Dec
The Fed is basically doing reverse QE by selling balance sheet.. this will push up fixed rate mortgage and effect global bond market.

Some aggressive forecast suggest BOC will increase 4 times next year (so long as growth continues)
FED will continue to raise, but maybe slightly slower as inflation is not at target (yet)
Same with BOC> however the momentum is swinging in favour of growth.

Worldwide ECB says their banks are ready to raise rates.

http://www.njherald.com/article/20171009/AP/310099940#

SO I would say we are in environment of raising interest rates now, the days of rock bottom are in the past.
Deal Addict
Jan 20, 2016
1214 posts
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Burlington, ON
September’s job gains were driven by the public sector, which added 26,200 positions, while the private sector shed 15,500 jobs.
minus 12000 from Sears, here we go to zero or negative growth.
Zero GDP growth last quarter, Bombardier's delivery questioned, Ontario wage growth which will trigger even more reduction in public sector. Possible B20 rules will freeze RE and related industries, and we're expecting BoC to increase prime 4 times per year? Seriously?

IMO Boc knew rosy 4% GDP was an illusion, so they bump the rate while they could just to have chance to stay put for a while.

FIxed rates it's a separate story, they could go +- 1-2% without BoC (and even Fed) rate change. And probably they will inch higher in short term
[OP]
Member
Dec 28, 2015
408 posts
116 upvotes
Westmount, QC
asa1973 wrote:
Oct 11th, 2017 1:40 pm
minus 12000 from Sears, here we go to zero or negative growth.
Zero GDP growth last quarter, Bombardier's delivery questioned, Ontario wage growth which will trigger even more reduction in public sector. Possible B20 rules will freeze RE and related industries, and we're expecting BoC to increase prime 4 times per year? Seriously?

IMO Boc knew rosy 4% GDP was an illusion, so they bump the rate while they could just to have chance to stay put for a while.

FIxed rates it's a separate story, they could go +- 1-2% without BoC (and even Fed) rate change. And probably they will inch higher in short term
GDP growth was 4.5% last quarter not 0. I think you mean the month of July?

https://beta.theglobeandmail.com/report ... ice=mobile

Is BoC really saying 4%? Imf and others only revised up twice and still at 3% only

So you think with the bad news that should come with Sears closing that I can stay in variable?

I hope you're right but when Target and etc closed it didn't slow us down.

I just don't want to be caught in variable as bank keeps hiking to combat economic growth and wage growth
Deal Addict
Jan 20, 2016
1214 posts
436 upvotes
Burlington, ON
MrWhiteCoffee wrote:
Oct 11th, 2017 1:50 pm
GDP growth was 4.5% last quarter not 0. I think you mean the month of July?

https://beta.theglobeandmail.com/report ... ice=mobile

Is BoC really saying 4%? Imf and others only revised up twice and still at 3% only

So you think with the bad news that should come with Sears closing that I can stay in variable?

I hope you're right but when Target and etc closed it didn't slow us down.

I just don't want to be caught in variable as bank keeps hiking to combat economic growth and wage growth
Ah, my bad. Yes, that was July numbers and year forecast is between 2 and 3% now.

Sears closure could be a bit more painful than Target one imo, as now nobody left to absorb them as remaining retailers already struggling...

Funny that almost all more or less big retailers (Winners, shops in malls) have "we're hiring" signs almost all the time. Well, it's rather min wage PT job with probably odd shifts, but looks like they still have job to fill...
Deal Addict
User avatar
Dec 14, 2007
2126 posts
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Nobody knows. Variable means YOU take on the risk, fixed means the bank charges you to take the risk.

If an increase would hurt you seriously, lock in for peace of mind. It's essentially 5-year insurance term on higher rates. This is why the variable almost ALWAYS beats out fixed long-term... there's no risk premium built in. What will the bank give you fixed vs. your current rate?

Example: A 1% difference on $500,000 over 25 years will cost ~$230 / month. If 1% is the difference between fixed and variable.

If those are your numbers, then ask yourself... would I pay $230 / month for security that my mortgage rate won't increase? if you think variable rates will jump 1% 12 months from now... then you've paid $2780 for peace of mind. Say there was another 1% jump 24 months from now.... now you're starting to reap gains... It would have to stay at 2% higher than today for another year for you to break even... Those last two years at 2% will save you $5560.

Yay... you saved a bit of money... you'll think that you're a genius. ( You're not... you just got lucky )

Consider the alternative... some big UNPREDICTABLE event happens like a big bank or real estate crunch that keeps rates low. Maybe it's lower than expected growth. If rates stayed at current rates, you'll have paid $14,000 for that locked-in mortgage. Oops... oh well, no one can predict the future you will think. No one's perfect.

After 5 years you're going to have to renew anyhow at higher rates, so it's best to ask... can you afford the risk, or not? If you can not afford the risk, then pay the bank. Long-term you will almost certainly pay a little more ( risk premium ) as the banks are better at this than you or I, but you will have more security and less to worry about. Sure, you may be able to play the system and win... and confirmation bias will tell you that you're a genius... but consider those that locked in in 2015 thinking rates can never get lower... before the bottom dropped out of oil.

You really can never know... so just break things down to their more basic elements... everything is a product and when it comes to borrowing, risk is either priced in, or assumed.

You either own the risk, or you pay someone else to own it for you.
I'd love to write history... in advance.
AMEX Biz Plat 75K :: Personal Plat 60K :: Biz Gold 40K :: Personal Gold 25K :: SPG 20K
Deal Addict
Nov 2, 2013
4728 posts
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Edmonton, AB
If the banks didn't make more money offering the fixed rate option, then they wouldn't offer it.

That being said people will pay for comfort/peace of mind for a set amount of time. They know people will pay for the higher fixed rate. There is a risk of rates going higher multiple times in the next while... or rates might even go lower, who knows. What the banks offer for higher fixed rates is their compensation for bearing that risk.
[OP]
Member
Dec 28, 2015
408 posts
116 upvotes
Westmount, QC
Thanks for the input...it's not that I can't afford higher rates, it's just I was contemplating if in the near future the variable will go higher than the current locked in rates. In which case I would lock it in.

I think I'll stick with variable a bit longer and keep monitoring

My current variable is 2.65 and locked in I was offered 3.1% I think thereabouts
Newbie
Jul 10, 2008
49 posts
10 upvotes
FWIW, I had a variable rate at 2.35% and locked in at 5 yrs, 2.91%, right before the first interest rate hike; my variable rate would now be 2.85% with the second jump that happened, so I'm already about equal, and another rate hike and I'm ahead of the game. I figure this was one of the few times where it makes sense to lock in. Worst case scenario is that I have a very good mortgage rate for the next 5 years. I can't imagine these historically low rates will be around too much longer.
Sr. Member
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Dec 13, 2016
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If someone like the OPw makes that much money, I'd simply stay variable and save aggressively.

There is no "peace of mind" with a fixed rate in Canada like in USA.
Sr. Member
Jan 9, 2010
786 posts
166 upvotes
People need to remember that even if the BoC raises interest rates again in December and then again after to effectively make your variable rate higher than what your fixed rate otherwise would be, it's still far too early to assume whether you would come out behind or ahead. Remember that the assessment should be done for the entire duration of your mortgage term (3/5 years for most people), and that future BoC decisions may result in the rate being lowered so that when it's all said and done you're still better off with a variable rate. Also remember that your savings in the beginning of the term when the variable rate was lower than what the fixed rate would've been should also be factored into the calculation.

I honestly feel that for those who chose a variable rate and are locking in now once rates increase defeat the entire purpose of choosing a variable rate to begin with. The whole point of choosing a variable rate is not thinking that the variable rate would be lower than what the fixed rate option would've been for the entire term, but that the overall savings would be higher once you factor in the fluctuations during said term. If you were so concerned about potential rising interest rates, you should've chose a fixed term to begin with. Converting from variable to fixed during your term in most cases results in a higher fixed rate over the remaining term than you otherwise would've qualified for if you chose fixed to begin with. If you're early in your term, there's ample time left in your term for variable to "make up" for the savings later if and when the BoC lowers rate during an economic downturn, and if you're late in your term, it doesn't make sense either because locking into a higher fixed rate results in higher interest costs for the remainder of your term than staying put and riding out the remainder of your term (which is almost up) All this does is benefit the financial institution that you're dealing with.
Deal Fanatic
Dec 11, 2008
7144 posts
431 upvotes
Depends how far you are into your term as well...

We are half way and still doing better than the fixed we were offered. I think interest rates have to raise another 1.5% or so before we break even...
Deal Addict
Sep 23, 2009
3836 posts
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Historically the Canadian economy is strong during the summer.

I still believe they only raised here - and the US - so that they have a tool when the economy weakens.

It's not actually that strong.

If it is, explain why they didn't raise aggressively in 2012 to 2014 when the economy was similarly hot?

If they had done it then, perhaps we could have saved our dollar from going to the 0.70s ( to the USD).
[OP]
Member
Dec 28, 2015
408 posts
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Westmount, QC
renoldman wrote:
Oct 13th, 2017 8:33 am
Historically the Canadian economy is strong during the summer.

I still believe they only raised here - and the US - so that they have a tool when the economy weakens.

It's not actually that strong.

If it is, explain why they didn't raise aggressively in 2012 to 2014 when the economy was similarly hot?

If they had done it then, perhaps we could have saved our dollar from going to the 0.70s ( to the USD).
That's an interesting perspective but from what I remember, economy was not not at all and GDP growth was not as strong for as long a time during that time period and wages weren't rising. It's the rising wages past year and accelerating is the big worry for higher bank rates and what I am worried about as people make too much money and push up inflation and leading to higher rates
Deal Addict
Nov 2, 2013
4728 posts
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Edmonton, AB
renoldman wrote:
Oct 13th, 2017 8:33 am


It's not actually that strong.

If it is, explain why they didn't raise aggressively in 2012 to 2014 when the economy was similarly hot?

If they had done it then, perhaps we could have saved our dollar from going to the 0.70s ( to the USD).
Unmployment rates are a common excuse for economic strength, but either people drop out of their industry or the workforce- thus they fall out of the statistic. Or the employer/business will employ more desperate people but pay each of them less, and give them less work. On paper it still looks better to have an artificially lower unemployment rate... and much of the public believes anything the media will tell them anyways.

Or another measure is real wages- that is relative to how much it costs to live, are they actually better off? Often not.

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