SmartHomeOwners

TORONTO: Diana Dobrusevski isn't losing any sleep over rising interest rates _ in fact the first-time homeowner who secured a discounted variable rate mortgage just before the credit crunch hit says she's confident her choice will keep saving her money.

``I worked at a bank for several years and I constantly saw people taking fixed-rate mortgages and it always seemed bizarre to me, because I would notice the rate and it never fluctuated that much,'' she said after the Bank of Canada announced it was moving interest rates higher Tuesday.

Homeowners like Dobrusevski are among those borrowers who will feel the modest hike most because their monthly payments are closely tied to banks' prime rates, which usually rise and fall according to the central bank's lending rate.

On Tuesday, the central bank raised its key lending rate from the emergency low of 0.25 to 0.5 per cent, the first such hike in almost three years. So far, that move does not seem large enough to frighten borrowers and the bank has hinted it will wait and see what happens before raising rates again.

Scott Ward, a financial adviser at Edward Jones, said prudent variable rate loan holders have good reason to feel secure.

``They have more reason not to really panic and just enjoy the low mortgage they have right now,'' he said.

However, Ward added, variable-rate mortgages generally come up for renewal after five years and it's impossible to know where interest rates will be at that point.

``They're at historic lows, so it's safe to assume they're going to go up in the future and as long as people haven't added too much consumer debt to their balance sheet, they should be able to withstand the increase in rates,'' he said.

Dobrusevski, 27, said she's happy she took a variable-rate mortgage in October 2008 at prime minus three quarters of a per cent, despite economists' predictions that interest rates would continue to rise as part of a strategy to guard against inflation as the Canadian economy bounces back from recession.

``If I were to lock into a fixed-rate mortgage right now, I'd be locking in at four or five per cent and my variable rate mortgage was at 1.75, and I guess it goes up to two per cent now but I think it will take years before it gets to four or five per cent,'' she said.

That's why homeowners who choose variable rate mortgages must have a high risk tolerance and be ready to deal with rate fluctuations, said 40-year-old Brock Parish, who also secured a cheap variable mortgage two years ago when he got married and bought a house in North York, Ont.

``A lot of people, they want to see that number all the same... but for me, variable saved me a lot of money,'' he said.

Like Dobrusevski, Parish secured a cheap variable-rate mortgage at prime minus 0.75 in 2008, just before banks clamped down on lending.

Parish, who works in the information technology sector, spent hours online doing research on mortgage rates, and enlisted a mortgage broker to negotiate the best deal with banks.

``I think there's too many people that spend way too much money on interest on the biggest investment they'll ever make because they don't do a little bit of research,'' he said.

Parish said the Bank of Canada would have to raise rates several more times and his bank's prime rate would have to go up from the current 2.25 per cent to five per cent before he would start to worry.

``Yesterday I was at 1.5 per cent and today I'm at 1.75... that makes me about a $20 difference on every two weeks paying on my mortgage,'' he said.

Parish said with no car payments and no children, he and his wife are able to put the majority of their savings toward paying down the mortgage but added he is always tuned in to where interest rates are going and how they will affect his mortgage.

``The people that overextend themselves are the ones that are more worried, but if they can't handle those small movements, they probably shouldn't have bought that house,'' he said.

Dobrusevski, who is completing an internship before she graduates from Toronto's Humber College, says the final payment on her mortgage is so far away that she isn't too concerned over whether fluctuating rates will take her longer to get there.

But, she added, she is a little worried that higher interest rates will affect the purchase price of her house if she chooses to sell in the near future.

``I think it will start to bring home prices down... if worst comes to worst, if you couldn't sell your unit for any reason, you could always rent it out.''

In that case, Dobrusevski said she would likely move home with her parents, who also helped her pay for the condo.