Mike Cara

Fixed Mortgage Rates Are Moving Up — But Don't Chase the Lowest Rate

If you've been watching mortgage rates recently, you may have noticed that fixed mortgage rates are under upward pressure again.

For many homeowners and homebuyers, that can be confusing.

The Bank of Canada doesn't have to increase its policy rate for fixed mortgage rates to move higher. Fixed mortgage pricing is influenced by several factors, including conditions in Canada's bond market.

And when bond yields rise quickly, mortgage lenders can respond by increasing fixed rates.

For borrowers in Peterborough and across Ontario, that creates an understandable reaction:

“Rates are going up. I need to find the lowest rate before they go any higher.”

But that's exactly when it's important not to lose sight of the mortgage attached to that rate.

Fixed and Variable Rates Don't Move the Same Way

One of the biggest misconceptions about mortgage rates is that the Bank of Canada controls them all directly.

It doesn't.

The Bank of Canada's policy rate has a strong influence on variable-rate borrowing. Fixed mortgage pricing is influenced more heavily by bond-market conditions, lender funding costs, competition and other market factors.

That's why fixed mortgage rates can increase even when the Bank of Canada hasn't announced a rate increase.

For consumers, the important lesson is simple:

Mortgage rates can move quickly—and not always for the reason you hear about in the news.

Should You Rush to Grab the Lowest Rate?

A rising-rate environment makes a competitive mortgage rate especially important.

But competitive and lowest aren't necessarily the same thing.

Consider two mortgages.

One has a slightly lower rate.

The other costs a little more each month but provides better prepayment privileges, a more favourable penalty calculation, portability or greater flexibility.

Which mortgage is better?

You can't answer that question from the rate alone.

The Penalty Could Matter More Than a Few Basis Points

This is something mortgage shoppers frequently overlook.

Most people don't take a five-year mortgage expecting to break it.

But life happens.

You might sell your home, relocate, refinance, consolidate debt, separate from your spouse or simply need a different mortgage before your existing term expires.

If you break a closed mortgage, a prepayment penalty may apply.

The Financial Consumer Agency of Canada warns that mortgage prepayment penalties can cost thousands of dollars, and the way they're calculated varies among lenders. (Canada)

Suddenly, saving a few dollars each month with a marginally lower rate may not look like such a bargain.

That's why I like to say:

Ask about the exit before you enter the mortgage.

Prepayment Privileges Have Value Too

Now consider the opposite situation.

Maybe you receive an inheritance, bonus or additional income and want to put a large lump sum against your mortgage.

Can you?

Mortgage prepayment privileges vary among lenders. Depending on the mortgage contract, you may be able to increase regular payments or make lump-sum payments without triggering a penalty, subject to specific limits. (Canada)

If paying your mortgage down aggressively is part of your financial strategy, those provisions matter.

Again, the advertised rate doesn't tell you that.

What Happens if You Move?

Portability is another feature worth understanding.

A portable mortgage may allow you to take the existing mortgage balance, interest rate and terms to another property, subject to the lender's requirements.

That can potentially help avoid the cost of breaking an existing mortgage when you sell and buy another home. (Canada)

If there's a reasonable possibility you'll move during the term, that's worth knowing before you sign.

Compare the Mortgage Behind the Rate

None of this means mortgage rates aren't important.

They absolutely are.

When you're borrowing hundreds of thousands of dollars, even a relatively small difference in interest rate can affect your payments and interest costs.

The Financial Consumer Agency of Canada specifically recommends shopping around for the best interest rate—but it also tells consumers to consider mortgage flexibility and the potential future cost of breaking the contract. (Canada)

Those aren't contradictory ideas.

They're the right way to shop for a mortgage.

You want:

A competitive rate + an appropriate mortgage.

Not:

The lowest advertised rate regardless of the terms.

The First Lender Matters

Different lenders have different rates, qualification guidelines, products, penalties and lending niches.

That's why my approach is to understand the complete application before deciding where it belongs.

Income. Credit. Property. Equity. Debt. Future plans.

Then we can identify appropriate lenders and compare their mortgage options.

Only then does comparing rates become truly meaningful.

Because the lender offering the lowest advertised rate isn't much help if that mortgage doesn't fit your application—or your plans.

Looking for a Mortgage in Peterborough?

With fixed mortgage rates moving again, now is a good time to understand your options—particularly if you're buying a home, approaching a mortgage renewal or considering refinancing.

Don't panic because rates are moving.

And don't choose a mortgage based on one number.

Understand the market.

Understand the mortgage.

Then compare the rate.

Because the objective isn't simply:

“Get me the lowest rate.”

It's:

“Help me get a competitive rate on the right mortgage.”

Your Mortgage Advocate,

Mike Cara

Mortgage Broker | Peterborough & Central Ontario

Over 30 Years of Excellence in Finance

705-775-7878