The question most asked by clients in the last month has been do I go with a fixed rate or a variable rate for my new mortgage? Not only is this important to ask now in a changing interest rate environment but is a question to be asked throughout the life of a mortgage and even during the middle of a mortgage term. Here are some scenarios in which you may want to evaluate what interest rate you hold for your mortgage.

  • When making a new purchase you need to decide to pick a fixed or variable rate depending on where current rates are, where they are projected to go and your risk tolerance.
  • When you are currently in a variable rate mortgage do you continue with your variable rate, choose a new variable rate term at a lower rate or do you lock into a fixed rate.
  • When you are in the middle of a fixed rate term does it make sense to pay the penalty and lock into a new fixed term at a lower rate to save more than the penalty. Also does it make sense to pay the penalty and lock into a new fixed term if you feel rates will be higher at your renewal than they are today.
  • When your mortgage is up for renewal do you switch up the product you were in such as going from variable to fixed or fixed to variable.

These are just an example of the scenarios with which to consider your mortgage rate options. Currently, there is a large spread between fixed and variable rates. The variable rates are approximately 1.5% or less while fixed rates are around or just over the 3% mark.

The Bank of Canada meets 8 times per year in order to announce any rate moves which will affect the prime rate. So far this year they have not raised rates although there is serious speculation that this will happen. Our best guess estimate right now indicates possibly 2 – 3 increases of prime during 2022. This would most likely represent a .5% to .75% increase in prime (prime usually moves .25% at a time).

Given where fixed rates are it would take approximately 6 increases in prime before the variable rate matches the fixed rates. This is very difficult to predict when this will happen. If we then work on averages it would take another 6 increases in prime after this, so a total of 12 increases, in order to get current variable rates to average out to what a current fixed rate in the 3% range is. That is a very large number of increases and of course a lot can happen along the way economically that would change whether or not this happens or how quickly it could happen.

For now, there is still potentially a lot of savings to be had by going with a variable rate but you have to be comfortable with the potential increases that are projected to come down the road. It is best to give us a call to discuss and see what is best for you.

If you need more information regarding mortgages or if you need any advice on your personal situation please contact our office at 604-556-3893 or email at alex.kotai@ymscanada.ca.

For more information on our mortgage products and your preferred Abbotsford Mortgage Broker please visit our website at www.ymscanada.ca.