Variable or Fixed, which should I choose?

The sky is falling, the sky is falling, or at least that seems to be what most people were thinking last week.
It seems we have all gotten used to historically low interest rates and there is random panic when we have a small increase.
Last week the Bank of Canada’s announcement to increase the overnight rate, to 1.25% had my phone ringing with questions of locking in and what my opinion is for what’s to come.
Let’s take a look at where we are at today.
The Bank of Canada’s Benchmark rate is now 5.14% which means that all high ratio mortgages now have to qualify at 5.14% and the prime rate has increased to 3.45%
So what does this really mean for Canadians?
Buyers now have to qualify at 5.14% or contract rate plus 2% depending on whether their mortgage is conventional (20% or more down payment) or insured (less than 20% down payment). This makes the entry point into home buying a little harder for some buyers.  My thoughts on this:  if 0.25% is the difference between buying a home and not buying a home, then you need to evaluate if you are truly ready to purchase a home at this time.
Variable rate mortgage holders are panicking thinking that they should lock in.
So lets look at what 0.25% increase in variable rate really means.
For every $100,000 in mortgage you will see an increase of $13.10 per month.
So if you have a mortgage of $400,000 that means a monthly increase in your payment by $52.40 per month
Things you need to ask yourself.
Why did you choose variable in the first place?
What has changed for you, other than rate?
When clients ask me if they should choose variable vs fixed, my response is always the same.
What type of borrower are you?
Will you be able to work your way through the possible ups and downs of a variable mortgage?
Historically variable vs fixed shows us that variable mortgage holders have come out ahead and save thousand of dollars on interest and paid their mortgages off faster. Are you the type of person who wakes up in the morning and worries about interest rates and how that affects your mortgage payment? If so, then you are not a variable client – choose a fixed rate.
So now I ask you…what’s changed? You knew interest rates were going up eventually.
Economists predict that we will see at least 3 rate hikes this year and so now you need to think, will you be able to weather through those three rate hikes (understanding we don’t have a crystal ball and there may be more than three or less than three hikes, this is just speculation until it actually happens)
If you still want to lock in or have any questions about your mortgage options, give me a call; I will be happy to help you work through the math and help you understand what option suits you better.

Should you have any questions, please email me at or call me at 905.870.0513

Leave a Comment

Your email address will not be published. Required fields are marked *