Rolling the dice

Days ago some lost waif wondered if it’s better, safer, wiser to lock up a home loan for five years, or get one with a floating rate.

You might be surprised how often this gets asked. Like, always. It’s interesting how people sweat and jerk over ten or fifteen basis points of difference. The average mortgage in Canada is $360,000, so a loan that’s 15 beeps more costs an extra thirty bucks a month. A dollar a day.

However, since the main motivation of most Canadians is to get up in the morning and figure out how to screw the banks, rates matter. People want to win, and lenders to lose. So they’re willing to roll the dice, even when they should eschew risk.

That brings us to today’s AF (astonishing factoid). According to the National Bank. borrowers have been running overwhelmingly away from safer, predictable, locked-in mortgages. The lender says a mere 8.8% of new borrowers are opting for longer terms with fixed rates. The other 91.2% are going variable.

For context, current 5-year fixed-rate loans cost about 4.5%, on average. VRMs are available for about a full 1% less. On that $360,000 loan the difference in the monthly is $160. Apparently that’s a bridge too far for almost all borrowers. Or maybe they can’t afford it. Or don’t understand we are still in a low-rate environment unlikely to last more than a few extra months. Or they don’t quite understand how a VRM loan works.

The cost of a variable-rate mortgage is linked directly to the prime rate at the bank. That, in turn, is married to the Bank of Canada benchmark rate – currently 2.25% and unaltered now for an entire year. That may seem stable. It ain’t.

The next CB rate setting is the week after next, and once again economists think our guys will be cool and do nothing. But all that is expected to change in 2027 as the cost of money in both the US and Canada clicks higher. Inflation has not been tamed, as the latest American number (3.7%) showed. Dumb Yankee policies and actions have ignited a global increase in costs and prices, with little hope things will change until 2029 (when he’s gone).

Tariffs and the international trade war Trump initiated have disrupted supply chains, added to transportation costs and jacked producer overheads plus consumer prices. The war in Iran and the attacks on energy shipping and infrastructure have goosed fuel costs. Oil surged from $60 a barrel to a hundred. Analysts say if the conflict ended today it would still mean years of high prices while refining capacity was brought back on line.

Meanwhile government spending, deficits and debt are rising to dangerous new levels, as this pathetic blog pointed out recently. The bond market has reacted in quiet horror, with yields pushed to the highest point in decades. Nowhere in the western world is there a government with an austerity agenda or elected to bring down indebtedness. People don’t know, or care. Those they elect don’t, either. Dog help us.

So, kids, there is no reason rates would go down – unless the economy blows up. But surging corporate profits, the massive AI spending and productivity boom and ever-rising public spending make that unlikely. In fact, right now, impossible.

The current forecast is 95% that US interest rates will be higher by a quarter or half-point by Christmas, with more advances in 2027. Every time American rates increase and Canada does not follow, our dollar falls. That makes imports cost more, stoking inflation here, while a lower currently is cited by the White House as an unfair trading tactic since it makes our exports cheaper.

Do we want more trade grief from that corrupt cabal of grifters?

Nope. Scotiabank thinks our CB rate will jump by three-quarters of a point by the middle of next year and the independent Parliamentary Budget Office sees an increase of half a point by summer.

If the jobless rate (now 6.5%) falls, if the economy grows more an anticipated or if we reach any kind of a trade deal with the US, rates will be under more upward pressure. After January, with a new administration in Washington, everything could change – and not for the worse.

In the States, the CME FedWatch Tool is showing a rate of 4.7% by late 2027 (the current range is 3.75-4%). The yields on US Treasuries – America’s pile of debt – have soared this year past 5%, long considered a level indicating danger. Homebuyers south of the border are contending with mortgages at 7.5%, which has led to a collapse in sales.

Rates are rising in America, Europe, Australia and Japan. Globally the cost of money is swelling as inflation spreads, the impact of tariffs is felt, as energy grows more expensive and the wealth divide in modern society yawns ever wider.

A recent Nik Nanos poll found almost six in ten Canadians expect inflation to keep going up. And yet nine in ten borrowers are banking on it going down.

Go figure. Somebody will lose.

About the picture: “This is handsome Barney,” writes Bonnie, “who lives in our retirement home in South Surrey, BC. He gets lots of love & adores his toys. Thanks for your great, informative blogs & humour.”

To be in touch or send a picture of your beast, email to ‘garth@garth’ca’.

Source: https://www.greaterfool.ca/2026/10/16/rolling-the-dice-3/