Fixed-Rate Mortgage Sounds Like A Good Idea Now?

For the first time in years, the Bank of Canada raised its benchmark rate from 0.25 to 0.5 percent. Why? To keep inflation under control and cool off the real estate market.

However, the rates are not yet as big as they were before the pandemic. In January of 2020, the rates were at 1.75 percent and were slashed down to 0.25. The rates may go back to what they were before – investors think there could be five more small rate hikes by the end of the year, due to inflation and the Russo-Ukrainian conflict.

The Bank of Canada’s rate has a massive role and affects the consumers in a significant way – mortgages, lines of credit and savings accounts might not look the same for some people. For example, this event might push some mortgage holders towards fixed-rate mortgages.

Let’s say more increases happen – a mortgage that costs you $1,500 a month now, could cost you more than $1,800 by the end of 2022, due to the rates rising. Does this mean you should switch to a fixed-rate mortgage? Depends.

Even though the rates have gone up, they are still historically low – there is no guarantee they will stay that way. But, variable rates never had any guarantees in the first place.

Also, fixed rates are past their lowest, while the variable ones have just started rising. However, if you are struggling with staying calm each time the Bank of Canada releases a statement and are afraid you won’t be able to afford your mortgage anymore – if you can do so, switch to a fixed one. Each person’s finances are different, so it’s hard to come up with a one-size-fits-all solution. If you’re not sure what to do at this time, don’t hesitate to give us a call and ask for advice.

There is no doubt that this increase will affect a lot of households that might end up paying hundreds of dollars more for their mortgages. There will have to be a lot of readjusting of budgets, especially for those with other costs of borrowing, like HELOC or other variable rate loans.