Tuesday's rise in variable mortgage rates will have some homeowners looking to lock in their rates, but experts say not to be hasty. It could be just a blip.The cost of a variable mortgage has risen for the sixth time since the summer, after the Bank of Canada announced Tuesday, May 23/06 it is hiking its benchmark interest rates by a quarter-point.

About 22 per cent of Canadian mortgages are now variable, moving in step with the bank's prime lending rate, says CIBC World Markets senior economist Benjamin Tal. He says more customers have been opting for fixed-rate mortgages over the last few months as interest rates have risen.But, he adds, the carrying costs on a variable mortgage are still less than those on a fixed-rate mortgage.

After Tuesday's rate hikes, a competitive variable mortgage rate will be about 5.2 per cent, up from 3.45 per cent at the beginning of September. As a result, the payments on a $150,000 mortgage will have risen from about $745 a month to about $890. A five-year fixed mortgage could be obtained at 4.5 per cent in September. That would cost about $830 a month on a $150,000, 25-year mortgage.

Today the rate for a five Year fixed mortgage is more like 5.30 per cent, costing $900. "Every time something happens with the rates, there are people who decide, instead of going variable, to go fixed," said Jim Rawson, a regional sales manager working in downtown Toronto.

But he said economists don't expect the Bank of Canada to continue its credit-tightening policy for much longer.

"It may be a blip in the market and, therefore, you may not need to worry about going into a fixed term if you're used to playing the variable game," he said. "There's really no need to panic. For those who are finding that it may be a bit of a pinch, there are things like longer amortizations." He said stretching mortgage payments over a 30- or 35-year window may be a good temporary solution for young homeowners who need to reduce their monthly payments in the short term but know they can increase them in a few years when their salaries are higher.

If you're the type of person who is going to lose sleep worrying about rates . . . take a fixed-rate mortgage. It's not worth it if you're going to be worrying about it every day. But there are savings to be had with a variable-rate product.
Steep competition in the Canadian mortgage market has been good news for consumers.

The pricing of variable-rate mortgages in Canada is becoming very competitive, and in fact market watchers have witnessed mortgage lenders battling for market share by offering variable-rate mortgage rates well below prime — discounts not previously seen in the Canadian market.