It’s Easy to Choose Between Fixed and Variable Rate Mortgages

Borrowers often feel torn between variable-rate and fixed-rate mortgages. But that is not the case in the near future. The case for the latter is almost overwhelming.

According to a local Mortgage lender, the fixed rate for an owner-occupied five-year fixed is 2.59%. Some credit unions even do 2.44%. The most popular variable right now however is 1.25%. If someone is looking to get a mortgage, I recommend that they set the monthly payments with a wait-and-see approach. Any additional amount they pay will hit the principal, which aids in amortization.

The fifth wave of COVID-19 has dealt an untimely blow to a reeling, but purportedly recovering, economy, and popular opinion among analysts that the Bank of Canada would hike the overnight rate by mid-2022 has been kiboshed. But variable-rate mortgage holders who might have been made chary by speculation that a rate hike was imminent can breathe a sigh of relief.

Quebec has a 10 pm curfew. We have restrictions on gatherings again across the country. We’re seeing COVID cases exploding and it feeds into the uncertainty about what’s going to happen in 2022,” Johanis said. ”We may see a discount with variables — right now it’s prime [2.45%] minus 1.25% and we may see prime minus 1.5%. We’ll see a discount, but how big it will be is up for debate.

Rightly or wrongly, variable interest rates are perceived as volatile and headlines that preceded the Omicron wave about imminent hikes next year actually impelled some borrowers to make hasty, and ultimately unwise, decisions.

The whole talk of an interest rate hike next year was very premature in my opinion,” Dustan Woodhouse, President of Mortgage Architects, recently told us. “The sad part is that news triggered people to take their 1.2% variable-rate mortgages and walk into 2.7% fixed-rate mortgages. They reacted to that news and they inflicted a 1.5% interest rate hike on themselves out of fear. That’s awful. And now what are all the news stories going to be about? The likelihood that further government stimulus will be required and is already being rolled out, and interest rate hikes will be pushed back to a future date. The real question is how far into the future?

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