Bank of Montreal (BMO) economist Douglas Porter is urging prospective home buyers to give fixed rate mortgages greater consideration, saying there appears to be a "shifting of the tides" in the financial markets.
The economic outlook both globally and for the United States has become more positive in the last three months, Porter said Thursday, and is starting to get reflected in the long-term interest rates.
"It's not dramatic yet, but slowly but surely some of those long-term bond yields that we saw at historic lows or at their lowest level since the Second World War in the last year have started to creep higher," Porter said.
"And ultimately that will be reflected in the borrowing costs that the average consumer or business faces. That's why we think, in the economics department, that this is one of those rare times when it does make sense for a borrower to basically lock in their mortgage at a fixed rate."
BMO is offering a special deal of 2.99 and 3.99 per cent for locking in for five and 10 years respectively on mortgages with a maximum 25-year amortization.
But mortgage broker Martin Krell of Dominion Lending Centre in Prince George advises clients to shop around and check the fine print.
"Some lenders will offer a very low rate but take away the prepayment privileges or take away the option to pay it off early," Krell said. "I won't sign a cellphone contract for longer than three years, why am I going to sign a mortgage that I can't get out of?"
Commonwealth Financial principal Dan McLaren said about 80 per cent of mortgages signed over the past two years have been variable rate but banks are now trying to balance their book of business.
"They've got too much that's floating, ergo there is too much at risk," McLaren said.
He suggested clients check their interest rate sensitivity in making a decision.
Those who risk losing their homes if rates rise by one or two per cent should go for a fixed rate, "and all of the banks have very attractive fixed rate products," McLaren said.
For those who can, he suggested waiting six to 12 months because it will be some time yet before the Bank of Canada significantly increases its lending rate to banks - and go for the longer term.
"Don't fix for five years, fix for 10 years because in 10 years time, your mortgage is going to be 30 or 40 per cent paid off and even interest rates are higher property values have probably caught up with it a little bit," McLaren said.
