With interest rates this high, should we pick variable or fixed rates?
If you had locked yourself into a five-year mortgage at record low-interest rates, you could consider yourself one of the lucky ones. For those shopping around for mortgages now, you are probably deciding whether you should choose fixed or variable rates.
The Bank of Canada was clear that they intend to continue raising rates. The economists at CIBC and RBC are also expecting another 50 bps rate hike. So why have more Canadians taken on variable rate mortgages in Q2 2022?
Stats Can reports that variable rate mortgages have increased as a percentage of total outstanding mortgages every month this year. Variable rate mortgages comprised 29% of total outstanding mortgages in January and 33,9% as of July.
It made sense to lock into long-term fixed rates when the overnight rate was 0.25%. However, many expect the Bank of Canada to pause and assess the impact of the interest rate hikes. The impact can take a couple of years to unfold into the economy. CIBC forecasts the overnight rates to increase to 3.75% and stay there from December 2022 till December 2023. The rates are expected to drop to 3.25% in June 2024 and 2.75% in December 2024.
If you are currently shopping for mortgages, it makes sense to get a variable-rate mortgage, given that the rates are expected to remain stable in 2023 and drop in 2024.
