With some recent
movement in rates, I have had a lot of clients ask whether they should go with
a fixed rate or a variable rate for their mortgage. That’s never an easy
question to answer, as the answer will depend largely on your individual risk
tolerance and how much payment consistency you require.
At the moment, you
could lock in a 5 year fixed anywhere from 3.49% – 3.89%. While these rates are
about a full percent higher than just over a year ago, they are still
historically very good rates.
On the flip side,
the variable rate currently sits at about Prime – 1.0% to Prime – 0.50%. This is equivalent to 2.95% to
3.45%. Before the year began, we were expecting up to three rate increases for
2019. So far though, with the reduction in oil prices and some other economic
factors, the Bank of Canada has taken a less aggressive approach. Experts are
now predicting maybe only one to two increases this year. Assuming two quarter
point increases, this could put the variable rate at around 3.45% to 3.95% by
the end of the year, closer in line with today’s fixed rates.
Assuming there are
two increases on the variable side this year, it creates a stronger case for
going fixed (as of today). On the other hand, if you can obtain a lower end
variable and still only be around 3.45% by the end of the year, then you saved
a good amount of interest and are still ahead of the game. It’s hard to say
what will happen beyond this year and therein lies the risk with the variable
If you are the
type of person that will lay awake at night because you took a variable rate,
then you should go fixed. Alternatively, if you can comfortably handle some
payment fluctuations then going variable can pay dividends in the long run. At
the end of the day, both options are good and the decision ultimately comes
down to your personal preference and what you feel most comfortable with.