Revisiting Fixed Vs. Variable Mortgages
It’s the classic rate decision many mortgage shoppers are faced with. And it’s only been made more complicated since the start of the pandemic. Towards the latter half of 2019, variable rates were flying off the shelves with rates as low as prime – 1%. A lot has changed since then.
In March, fears over the COVID-19 pandemic and the subsequent lockdown forced most banks and other mortgage lenders to cut their fixed rates from 3.95% to 2.45% within the span of just one month. At the same time, variable-rate discounts were scaled back to just prime – 0.15% to 0.25%. By the summer fixed rates were setting historic lows. That led to a dramatic shift in mortgage selection by borrowers.
Why the shift in mortgage preference?
First, the fixed rate mortgage is among the most competitive mortgage products on the market. And many believe variable rates have no more room to fall, given that the Bank of Canada’s overnight target rate is holding at 0.25%.
Second, homebuyers are attracted to the stability that fixed-rates offer. They can lock in a rock-bottom rate for five full years.
The Bank of Canada, in its recent Monetary Policy Report, suggested that rates won’t be rising until at least 2023, which is when inflation is expected to return to full capacity. Some forecasters, such as those at TD Bank, don’t expect the first-rate hike until 2024.
With forecasts like that both variable and fixed could be good options.
If you are in the process of shopping for a mortgage and are undecided whether to take a fixed or variable rate, I can help you understand the pros and cons and offer personalized solutions.
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