Rising Interest Rates Are To Blame

With the Bank of Canada’s prime lending rate currently at 5.95%, the cost of variable-rate mortgages is almost on par with fixed rates for the first time since 2019.

Fixed mortgage rates, which are locked in at the beginning of a term, and stay the same during that term, are typically higher than variable rates since they offer more stability to investors.

Since the Bank of Canada (BOC) has raised its interest rates six times in the past year, the costs of variable mortgages have soared. The rates for variable mortgages are tied to the BOC’s prime lending rate (usually plus or minus some percentage points).

Another rate hike is expected next month, which could push the cost of variable mortgages even higher.

What This Means For Home Owners

Many Canadians continue to prefer variable rates, even in the current climate. Variable rates tend, on average, to be less expensive over time. They also offer more flexibility.

However, if variable rates do begin to exceed fixed rates, this may change.

Homeowners with signed fixed-rate mortgages are likely breathing a sigh of relief since their interest rates were likely relatively low compared to today’s rates.

Those with variable-rate mortgages may feel the strain on their budgets with the recent increases and may wonder if switching to a fixed rate is right for them.

If you are considering buying a home or applying for a mortgage, you may be wondering which option is best for you. The answer is that it depends on your current situation and risk tolerance.

Fixed Rate Pros And Cons

Fixed-rate mortgages offer peace of mind knowing your monthly mortgage payments won’t change over your term. The downside is that if the current rates do go down in the next few months or years, you could be stuck paying a higher rate.

These mortgages are typically recommended for people with little wiggle room in their budgets, and who are starting out with their mortgages, meaning that a higher proportion of their monthly payments go to paying off interest.

Variable Rate Pros And Cons

Variable rate mortgages do tend to be less expensive over time. However, if you decide to go with this option, be sure you have the money in your budget to handle higher costs if the interest rates go up. The current rate of 5.95% may seem high now, but historically rates have gone as high as 21% in Canada.

These mortgages also have greater flexibility. If you would like to pay off your mortgage faster than the allotted time, this could be a good option for you. Variable mortgages are also good choices for those who have been paying off their mortgages for a while, and are paying less interest as a result.

Don’t Do It Alone

Your situation is unique, and having a trusted advisor on your side can make all the difference. If you have any questions about your current mortgage, or are looking for a new one, get in touch with us today. We’re always happy to help!