Are you shopping for a mortgage these days? If so, you’ve likely already started thinking about one of the biggest questions you’ll struggle with as a homebuyer: do I go with a fixed or variable mortgage rate? While it might be tempting to go with the lowest rate out there, for the last 5 years most Canadians have passed on the sprinkles and opted for the plain vanilla 5-year fixed plan instead. This year has been different, though, with over 51% of Canadians choosing variable rates over fixed, hedging their bets on not seeing a Bank of Canada interest rate hike until end of 2022.
In response to Scotiabank Economist Derek Holt predicting the Bank of Canada will need to hike rates as many as eight times by the end of 2023, bringing the benchmark rate to 2.25 per cent, some think that going with a variable rate at this point is rolling the dice.
Obviously, the question of which one to choose is a complicated one (almost as taxing as choosing between ice-cream flavors), with each homebuyer’s situation and circumstances being unique to them. If you’re thinking of selling or switching to a new property within the term of your mortgage, then maybe a variable rate mortgage makes more sense (the penalty for breaking your mortgage is generally greater with fixed, with variable mortgage rates often requiring you to pay only three months’ worth of interest to get out of your contract). On the other hand, if you’re risk averse and like to know exactly what you’re getting, then fixed is a safe bet choice.
As with most choices in life, there are pros and cons to choosing fixed or variable. However, many agree that one of the riskiest times to choose a variable rate is immediately before an anticipated tightening cycle of monetary policy, simply because there are more unknowns floating around.
The main point to keep in mind: take the time to carefully assess your own personal situation and goals, learn more about what’s happening in the market now and what experts say might happen in the near future, and then consider each option carefully based on your unique circumstances.