We’ve been advising our clients to take a variable rate mortgage essentially since the 2007 downturn. Today our message is the same.

But we know there’s a lot of concern right now caused by the increases to fixed rate mortgages. But rest assured – here are 4 reasons why you shouldn’t worry about your current variable rate mortgage rising anytime soon.

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1.       The pricing of Fixed and Variable rate mortgages are based on very different factors. Fixed mortgages are tied to Canadian bond yields, which in turn are tied to US bond yields. So the recent increase in longer-term Canadian fixed rate mortgages is nothing but a reflection of the expectations for increased US government spending under the Trump administration, and the expected inflation such spending may cause. The increase is not a reflection of anything happening within Canada’s economy.

Conversely, variable rate mortgages are tied to the prime rate and in turn the Bank of Canada overnight lending rate. While TD recently went it alone to increase its newly minted “mortgage prime rate”, it remains to be seen whether other lenders will follow. But even if the prime rate were to rise say 15 basis points (TD’s increase), if your current rate is say prime minus .50% (or 2.20%), a new rate of 2.35% is still much better than the current fixed rates on offer that you might consider locking into (anywhere from 2.49% – 2.79% depending on your lender).

2.       One way to read the slew of mortgage rule changes introduced over the last two months by the federal government is to view them as an attempt to raise the cost of borrowing for home owners without necessitating a rate hike by the Bank of Canada, since a BoC rate hike would exacerbate the current pain of our manufacturing and export sectors (the supposed drivers of our economy along with housing). In other words, the new rules amount to an artificial rate hike, surgically targeted at housing while (hopefully) sparing the economy at large. But as momentum continues to drain out of our economy, and soon at a quicker pace with the new anti-trade programme taking shape in the US, the likelihood of further monetary easing in 2017 is actually increasing.

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In other words, if you’re already in a variable today, don’t be surprised if your rate is actually lower this time next year.

3.       All of the market action underlying the recent rate hikes has been purely speculation driven, almost exclusively in response to the surprise election result in the US. But the same weak economic indicators we saw prior to the election are still weak today. One person doesn’t turn an economy around, and Trump is not the saviour it may appear through the lens of the the recent market rallies. The US economy will either continue plodding along in the slowest expansion on record, it will further weaken, or it will heat up as protectionism, corporate tax cuts, and tariffs on imports give it a boost. The unfortunate thing for Canada is that none of those outcomes is good. So enjoy your low rates if you’ve got them, and don’t worry – they’ll be here for a while.

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4.      Finally, the flexibility of a variable rate is unmatched. Lower penalties if you decide to sell, or if you want to break your mortgage to invest your equity as a hedge against a policy-inflicted housing downturn, give you much greater optionality than a fixed rate. If you want to refinance to grab that equity today that you may not have access to after the November 30th regulations take effect, click here.