VARIABLE RATE MORTGAGES HAVE JUMP IN THE WAKE OF INTEREST RATE INCREASES HERE IN CANADA AND THEY ARE SET TO RISE EVEN FURTHER THAT MAY HAVE SOME HOMEOWNERS CONSIDERING WHETHER THEY SHOULD CONVERT TO A FIXED RATE MORNING YOU BUT OUR NEXT GUEST SAYS THAT'S NOT A FORGONE CONCLUSION. LET'S TALK NOW TO JAMES LAREK CO-FOUNDER OF RATE HIKES.CA. JAMES THANKS FOR JOINING US. IT'S EASY TO UNDERSTAND THE DISCOMFORT THAT HOLDERS OF VARIABLE RATE MORTGAGES WOULD FEEL. NOW THE BANK OF CANADA SET TO RAISE RATES, ALMOST UNIVERSITIERS HAVE I WILL EXPECT FOOD BUMP THEM UP BY ANOTHER THREE QUARTERS OF A PERCENTAGE POINT NEXT WEEK. WHAT ARE SOME OF THE FACTORS THAT MORTGAGE HOLDER NEED TO UNDERSTAND BEFORE MAKING MOVE TO A FIXED RATE MORTGAGE? >> GOOD MORNING, PAUL. THANKS FOR HAVING ME. SO I GUESS THE FIRST THING TO UNDERSTAND IS THAT YOU CAN -- WITH ANY MORTGAGE LENDER IN CANADA YOU CAN CONVERT FROM A VARIABLE TO A FIXED RATE MORTGAGE AT NO COST. YOUR CURRENT LENDER TO OFFER YOU A TERM THAT IS THE SAME OR LONGER THAN WHAT YOU HAVE REMAINING WITH THEM. SO FOLKS IF YOU HAVE THREE YEARS REMAINING YOU CAN NAP LESSON TO OFFER A 3, 4, 5-YEAR FIBBED MORTGAGE TO LOCK INTO. ALSO WORTH NOTING PAUL YOU WOULD NOT HAVE TO REQUALIFY WHEN ARE YOU DOING A CONVERSION FROM VARIABLE TO FIXED. >> Paul: INTERESTING. I'M LOOKING AT THE RATE HUB.CA STREAM. PAGE WHICH OUTLINED BEST FIVE-YEAR FIXED RATES IN CANADA THEY ARE RATES THAT RANGE FROM 4.14% TO 4.94%. SO BETWEEN 4 AND 5%. NONE OF THOSE LESSONNERS ARE MAJOR CANADIAN BANKS. WHICH I GUESS IS TYPICAL. HOW DO VARIABLES RANGE. FROM JUST UNDER 4% TO JUST UNDER 5%. SO YOU CAN STILL GET A VARIABLE RATE MORTGAGE BETWEEN 2.5 AND 3 BEFORE THIS INCREASE NEXT WEEK. SO THE SPREAD BETWEEN VARIABLE AND FIXED IS STILL QUITE LARGE. ABOUT 200 BASIS POINTS. SO THAT IS HOW MUCH IT WILL COST YOU, PAUL, TO CONVERT FROM A VARIABLE TO A FIXED RATE MORTGAGE WHICH IS WHY EVEN THOUGH WE HAVE A LOT OF VARIABLE RATES CONSUMERS IN THE COUNTRY. NOT EVERYONE IS CONVERTING TO A FIXED RATE. THEY ARE TAKING A LONGER TERM APPROACH AND THINKING I WILL PAY THIS MORTGAGE OFF 5 OR 25 YEARS AND THE VARIABLE RATE HAS BEEN A CHEAPER ONE TO GO AND IS STILL CHEAPER NOW SO I WILL STICK WITH THE VARIABLE RATE KNOWING THAT HISTORICALLY SPEAKING IT HAS BEEN THE CHEAPEST WAY TO FINANCE HOMES IN CANADA. >> Paul: INDEED CAN A HOMEOWNER SOMETIME IN THE FUTURE SWITCH FROM A SWITCHED RATE TO A VARIABLE RATE? >> GLEN QUESTION, PAUL. AND YOU CANNOT DO THAT. ONCE ARE YOU IN A FIXED RATE YOU CAN FAIRLY STUCK AND FIXED RATES DO HAVE MUCH LARGER PENALTIES AND LESS FLEXIBLE THAN VARIABLE RATES. AND IF RATES DO HAPPEN TO DROP IN THE FUTURE, THEN THOSE FIXED RATE PENALTIES CAN BE QUITE LARGE. YEARS AGO WHEN RATES WENT UP AND THEN CAME BACK DOWN, FIXED RATE MORTGAGE HOLDERS WHO LOOK TO BREAK, THEY WOULD HAVE 10, 20, 30,000 DOLLARS PENALTIES SO WE ARE SEEING A LOT OF CONSUMERS STICK WITH THE VARIABLE FOR THE FLEXIBILITY AS WELL. >> Paul: PENALTIES BETWEEN 20 AND 30,000 DOLLARS FOR A FIXED RATE MORTGAGE, IS THAT CORRECT? >> THAT'S CORRECT. AND PAUL, THAT'S OWN IN THE CASE WHEN THE MARKET RATES DROP. SO LET'S SAY WE GET UP TO FOUR OR FIVE OR 6% ON THE FIXED RATE SIDE AND BY GET INTO RECESSIONS WE SEE THE FIXED RATES COME DOWN. THAT'S WHAT CREATES THE PENALTIES. IF RATES RISE IT'S THREE MONTHS OF INTEREST WHETHER IT'S A VARIABLE OR A FIXED RATE BUT IF YOU BREAK A 5ED RATE WHEN THE RATES ARE LOWER THAN YOU HAVE. THAT'S WHEN THE HUGE PENALTIES ARE CREATED. >> Paul: WOW. EXPLAIN TO US THE SYSTEM OF TRANSMISSION, IF YOU WANT TO CALL IT THAT. THAT BEGINS WITH THE BANK OF CANADA RAISING ITS BENCHMARK INTEREST RATE. IT'S SO-CALLED OVERNIGHT RATE TO THE VARIOUSAL RATE MORTGAGE. THE NEXT DAY -- OFTEN WITHIN HOURS, WE SEE ONE OR TWO OF THE MAJOR CANADIAN BANK RAISE THEIR PRIME RATES. OTHER MAJOR BANKS ALWAYS FOLLOW SUIT. AND IT'S NOT LONG AFTER THAT, CORRECT THAT, THE VARIABLE RATE MORTGAGES GO UP. >> YES, SO ANYONE WITH A VARIABLE RATE MORTGAGE OR A HOME-ECKITY LINE OF CREDIT WHICH IS ALSO BASED ON PRIME, THEY CAN EXPECT THEIR RATE TO MOVE QUITE QUICKLY WE SEE THE BANKS -- WHEN RATES RISE WE SEE THE BANK REACT VERY, VERY QUICKLY. TO PASS ALONG THE INCREASED RATES TO CONSUMERS SO ANYONE WITH A VARIABLE RATE MORTGAGE OR A HOME-ECKITY LINE OF CREDIT SHOULD BE BUDGETING FOR WHAT THIS THEIR PAYMENT LOOKS LIKE ONCE THIS ASSUMED 5 OR 75 BASIS POINT RATE HIKE OCCURS NEXT WEEK. THEY SHOULD ALSO BE BUDGETING FOR THE 350 OR 100 BASIS POINT RATE INCREASE TO THEIR VARIABLE RATE PAVEMENT OR THEIR HOME-ECKITY LINE OF CREDIT PAYMENT. OF COURSE PEOPLE WITH A FIXED RATE MORTGAGE RIGHT NOW, IF YOU ARE PARTWAY THROUGH YOUR TERM THIS ANNOUNCEMENT NEXT WEEK WILL NOT AFFECT YOU BUT IF YOU DO HAVE A RENEWABLE COMING UP YOU KNOW IN THE LATTER HALF OF THIS YEAR OR EARLY 2023 YOU SHOULD ALSO BE CALCULATING YOUR PAYMENTS BASED ON THE NEW RATE ENVIRONMENT IN A WE ARE IN. >> Paul: STOCK MARKET PROVINCE. S OFTEN ADVISE INVESTOR TO THINK SERIOUSLY ABOUT THEIR RISK TOLERANCE BECAUSE YOUR PORTFOLIO DEPEND ON YOUR ABILITY -- OR YOUR WILLING TONS TOLERATE THE SIGNIFICANT RISK THAT IS IN THE EQUITY MARKETS. THAT'S A BIG PART OF THIS EQUATION AS WELL. THAT HOME-ECKITY OWNERS NEED TO THINK ABOUT THEIR RISK TOLERANCE. >> CERTAINLY ANYONE WITH LOWER RICK TOLERANCE OR TIGHT HOUSEHOLD FINANCES ALREADY BE IN A FIXED MORTGAGE. A VARIABLE RATE MORTGAGE IT CARRIES MORE RISK. ARE YOU FLUCTUATING WITH THE MARKET AND THAT IS ONLY APPROPRIATE IF YOU HAVE SOME EXCESS FUNDS AND YOU CAN HANDLE IT -- IF RATES CONTINUE TO RISE, MAYBE THEY GO HIGHER THAN ECONOMISTS ARE EXPECTING. YOU NEED TO BE ABLE TO HANDLE THOSE TYPES OF PAVEMENTS. SO, HE YES, FIXED RATES ARE APPROPRIATE. IF YOU ARE MORE RICK
