Making sense of mortgage rates
By Diana McLaren • Bankrate.com

"There's no guarantee. If inflation starts to rise, and depending on where the Canadian dollar goes, the central Bank may raise rates. The predicting part is the tough part," he says.

CIBC Chief Economist Avery Shenfeld stated in a recent CIBC World Markets report that "Canada's inflation rate will be no threat to the Bank (of Canada) easily fulfilling its pledge to keep interest rates at a slim quarter point through mid-2010."

Mortgage advisers say the current variable-rate mortgages that offer a lock-in provision are a good deal. But taking one does involve a certain amount of market-watching to know when it's time to opt for the security of stable rates over the next few years.

It also means you need to look at your own risk tolerance, says Hafer. "You do need to realize that variable rates can be volatile. You need to look at your ability to make payments if the rates go up, even by a fraction of a percentage point. You need to assess whether you have a cushion."

And while most variable plans do allow you to lock in, Hafer says "you need to ask what rate will I get, will that rate will be discounted and (are there) any penalties for changing."

With fixed and variable rates at all-time lows, experts caution that there's nowhere to go but up. Hafer advises that locking in is "probably not a bad idea. There's little downside to a fixed-term at these rates since rates are more likely to go up than down."

Hart says there is a "lot of uncertainty as to where rates will go and a lot of hesitancy on the part of consumers because of job insecurity, which is a huge factor."

Movement of money
How money moves between the more secure bond markets and the less secure equity markets will also affect interest rates. "Still, it's too simplified a way to monitor rates," says Hart, because "money moves internationally and there are a number of variables. Professionals have had difficulty making market predictions, so how can the average consumer predict?"

As a mortgage broker, Hart says "a lot of people think I have the ability to negotiate rates. I don't. The banks provide their best top rates for the day, and it varies daily in terms of who is offering what rates. In addition, there are broker-exclusive lenders who can sometimes offer a point or so lower, but overall, lenders are quite competitive amongst themselves."

One of the best pieces of advice Hart gives clients is to "take advantage of historic low variable rates, but make sure you have the provision to pay down the principal and then do it."

That said, with fixed-rate mortgages at record-low rates, the security they afford will suit the more risk-averse borrowers and those with little ability to make even slightly higher payments.

"People can feel overwhelmed with the macro picture," says Hart, "so you have to bring it back to a micro level to decide what type of loan you are comfortable with."

Diana McLaren is a writer living in Toronto.