donde Lowest nationally adveriised mortgage rates he Bank of Canada is final. ly starting to signal that in TERM INSURED PROVIDER UNINSURED PROVIDER 1.99% True North 2.29% Multiple present danger. And if you're a 2-year fixed 1.83% Scotia HOME 1.88% Scotia HOME mortgagor, that means rate risk 3-year fixed 1.84% Marathon 1.98% Scotia RHOME has risen meaningfully. 4-year fixed 2.08% Scotia HOME 2.13% Scotia HOME The bond market concurs. As 5-year fixed 2.09% Marathon 2.29% Motusbank of this writing, it's pricing in no 10-year fixed 2.79% Nesto 2.94% HSBC less than five rate hikes in the 5-year variable 0.99% HSBC 1.34% Scotia cHOME next 12 months. A few months HELOC na nya 2.35% Tangerine ago, it was pricing in one. home equity line of credit. Source: Robert McLister, data as of Oct 27 That kind of drastic shift in rate expectations doesn't hap- this level of inflation pressure A lot of people in this country pen often, but when it does, only once in the past 30 years - love their variables and cite, ad most mortgage shoppers should in 2007-08. The Bank of Canada nauseum, historical research on batten down the hatches and hiked 250 basis points to get con- the variable-rate advantage. If lock in. That is, if they need fi- trol of inflation back then. The there's one thing I'd caution you nancing and rate certainty for global financial crisis then on, it's not to get hung up on the more than just a few years. ensued, which brought rates past. What happened with rates Tip: If you do lock into a fixed back down. (There are 100 basis in the 1980s, gos and early 2000s rate, choose a lender that makes points in a percentage point.) bears little resemblance to it likely you'll pay just a three- This time, inflation warning what's unfolding today. And months' interest charge if you signs are glaring, from supply Bank of Canada Governor Tiff break the mortgage early, unless bottlenecks to the demand-in- Macklem's promise that infla- you're certain you'll ride your ducing effects of record fiscal tion is "transitory does not mortgage to maturity. And con- spending. The central bank is in mean that inflation will be short- sider refinancing if your existing a bind. If the market is right, and lived. lender doesn't have good rates it's often not, the bank will need Certainly, all of these projec- and the prepayment penalty on to hike rates in one of its next tions could change given that your existing mortgage is low three rate meetings, culminating the inflation picture is fluid. But enough. in as many as 200 to 250 bps of if you have to book a mortgage rate hikes over the next five rate today, you've got to do it on years. WHY THE URGENCY? the best information available. And if the family budget is tight- Normally the Bank of Canada er than you'd like, managing rate gets out in front of inflation with HOW TO PLAY IT risk with a low-cost fixed rate is pre-emptive rate hikes, given it Virtually any rate simulation the way to do that. takes 18 to 24 months for mone- based on current market expec- The accompanying table of tary policy to take effect. tations shows a four- or five-yearfers a quick look at the best na- This time it hasn't done that fixed easily outperforming a tionally available mortgage rates This time, it's a firefighter late floating rate mortgage, assum- as of Wednesday. You'll find that to the fire. And when that hap- ing: a) you pay just a three online rate sites show lower rates pens, you need a lot more water months' interest prepayment in some provinces. to put out the blaze. Read: more penalty if you must break early, Rates shown in the table are rate hikes, faster. and b) you pay no more than from providers that lend in at If the central bank acts too about one percentage point or so least nine provinces and adver- late, short-term price pressures extra for that fixed-rate mort- tise rates on their websites. In- can become longer-term price gage, versus the best variable. sured rates apply to those buying pressures. And that can be disas- In past rate cycles, the Bank of with a down payment of less trous for an economy and for Canada has hiked roughly every than 20 per cent, or those switch- any borrower whose income is three months, on average. This ing a pre-existing insured mort- not keeping pace with inflation time, if it's as behind the curve as gage to a new lender. Uninsured And make no mistake, price the market implies, we could see rates apply to refinances and levels are spiralling. Average core some back-to-back hikes, further purchases of more than $1-mil- inflation could soon smash a tilting the odds in favour of lion and may include applicable three-decade high. We've seen fixed. lender rate premiums. Please the read following opinion piece by Robert McLister in the Globe and Mail, Report on Business (Oct. 28, 2021) and answer questions 23-25: "With higher interest rates ahead, it is likely time to lock in your mortgage". Question 23 Why do you think McLister believes that mortgage "rate risk has risen meaningfully"? What do you think he means when he says that "the bond market concurs"? Question 24 Why do you think it might be the case that "if the central bank acts too late, short term price pressures can become long term price pressures"? Question 25 What does McLister mean when he says simulations show "a four- or five-year fixed easily outperforming a floating rate mortgage"? If this is true, how do you think people will try to adjust their mortgages