Is It Time For A Fixed Rate Mortgage?

<p>Is it Time to Lock In?</p> <p>Inflation may be taking us on a wild ride.</p> <p>If you operated your household finances like a country here is what you would do right now:</p> <p>1) Borrow as much money as you can at as low a fixed, long term interest rate as possible;</p> <p>2) Invest in ways to increase your productivity and income well into the future.</p> <p>This strategy increases your debt, but assuming you can invest in ways that earn income in excess of the interest you pay, your net worth will grow and at the end of the term of the debt, it will be easily refinance-able.</p> <p>The best Five Year Fixed rate mortgages are typically reserved for borrowers with lower down payments who are purchasing rather than those with higher down payments or with greater equity positions looking to refinance.  Today the best 5 year fixed rate mortgage on the market is 1.39%.  The best variable rate on the market is 1.35% which is 1.10% below prime.</p> <p>What we think we know:</p> <p>The economy will likely experience a double dip recession. The long, hard winter of 2021, with renewed lock-downs, is exposing the gaps in the response of all governments to the COVID-19 crisis.  There will be real and lasting damage to the economy as a result.  </p> <p>Low interest rates are here for the foreseeable future.  The Bank of Canada has used low rates like a surgeon uses powerful painkillers.  Premature cessation of either could be worse for the patient than the disease was.  </p> <p>We are starting to recommend fixed rates in the 5-7 year tenor (we see little value in 10-year rates).  Our view is that all of the government’s actions at the moment are highly inflationary, and as the world normalizes that demand will recover faster than supply in the 18-36 month time frame.  5 and 7 year fixed rates appear to us not to reflect this eventuality.</p> <p>Tomorrow the Bank of Canada will meet to offer guidance as to how the economy is doing and some economists predict we could see a, “Micro-cut”, this would mean a reduction in th