Trying to buy a house? Frustrated to find out that interest rates are going up? When will the roller coaster stop? The five year term mortgage now sells for about 9.5%. It may go up even more. One must not panic. Don't lose sight that it is a home we are trying to purchase, not a mortgage! What if I told you that since 1956, the average five year mortgage rate has been 10.25%!

The rate really belongs around 10% to make the whole cycle work properly. The higher the mortgage rate, the higher the investment rate. If you are paying 10% on your mortgage, the lender who administers your mortgage had to pay around 8% to get the money to lend to you. The 8% gets paid to Canadian depositors who buy 5 Year GICs (Guaranteed Investment Certificates) from that lender.

Our elderly (they seem to be the only Canadians to have money to invest) have been complaining about lack of investment return ever since we (the borrower) have been lauding the economy for giving us low rates on mortgages.

This writer remembers 1981-1982 when borrowing rates hit 20%. The catalyst then was Canada Savings Bonds at 17.5% This time, the Canadian dollar is falling out of favour in the international market place, causing the Bank of Canada to hedge the Canadian Dollar. The only way we can hedge against our dollar going too low is to offer higher and higher deposit rates. Truly the present blend (8% deposit, 10% mortgage) is perfect for all concerned.

If you can lock in without paying through the nose, then go ahead and lock in. If you must rush to make a purchase, so you can lock in the best mortgage rate, don't! Any decision made in haste has the tendency to blow up in your face.

Those of you who elected to take a six month or one year "convertible" mortgage so time ago because you thought the five year rate was going to continue to slide (and the rate was so much cheaper on the short term) now realize that only hind sight is 20/20. You may have saved in the short haul but have you saved in the long run? A first time buyer should always elect to take their first mortgage for a term of five years or longer, to prevent what has happened in the last couple of months. One of my clients chose to go short term about four months ago. The five year rate then was 7.5% He qualified at 7.5% but the six month rate was 5.5%. The 2 percent differential saved him about $125.00 per month. So he saved about $500 over the last four months but now that rates are 9.5% for a five year term, he will pay an additional $130 per month for the next 4 1/2 years. Did he really save money?

I still predict the rates to decline in the summer but I don't think we will see five year mortgage rates at the 1993 levels for quite a few years. Home ownership is still the best way of paving your road to financial independence. Don't get greedy! Be thankful that you can indeed buy a home, no matter where the mortgage rates happen to be.