7 reasons for locking in your mortgage, and 5 reasons not to

If economists are right that rates don’t have much room to fall (barring a shock), should more borrowers give locking-in a longer, harder look? Photo by Marchmeena29/Getty IMages/Postmedia files

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The market agrees, with traders implying little probability of movement in the overnight rate this year, according to the latest forward rate data from Candeal DNA.

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“Overall, the case for further (monetary) easing is weak,” RBC Senior Economist Claire Fan wrote yesterday, reflecting the sentiment of most of her peers.

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That’s all a disappointment to the many who rode the variable-rate coaster lower these past two years, hoping the ride would last longer.

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Plenty were betting hard that high rates, a shrinking population and/or Trump swinging trade tariffs like a sledgehammer would crush the Canadian economy way more than reality delivered.

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Instead, macro data have beaten predictions and — pandemic aside — OECD leading indicators forecast that much of our economy could expand at the fastest pace since 1994.

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Sure, a whole chorus of dovish analysts keeps insisting Canada’s economy is fading fast. In fact, many have been crooning the same tune since last spring, yet somehow the patient is still upright and breathing.

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Meanwhile, the folks with mortgages aren’t exactly cashing in on this supposed economic slump. Average borrowing costs are almost the same as they were last March, when Trump’s tariff circus caused you-know-what to hit the fan.

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Variable popularity increases

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The share of borrowers piling into floating rates has been growing.

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Last year, at least 35 per cent of prime mortgage shoppers signed up for a variable, according to Bank of Canada numbers.

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Fast forward to now, and real-time data from Dominion Lending Centres Group — a decent proxy given it’s the nation’s largest mortgage originator — suggests that half of new prime mortgage applications this month were for variable rates.

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But if economists are right that rates don’t have much room to fall (barring a shock), should more borrowers give locking-in a longer, harder look?

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It’s a fair question, considering the average variable rate over the past year hovered around prime minus 0.75 (equalling 3.70 per cent today). By comparison, current fixed rates sit only a quarter-point (25 basis points) higher at competitive lenders.

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In other words, the price of certainty is cheaper than usual.

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Of course, if you somehow knew the Canada–United States–Mexico Agreement was about to unravel and drag the economy into a downturn, or that another recessionary shock was queued up, locking in would make far less sense.

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But omniscience is in short supply, and betting on a disaster to pull rates lower is a gamble. In fact, it’s more “gamble” than paying 25 basis points extra for the certainty of a fixed rate.