Fixed vs. Variable

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 rate game.

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.