Before we get our hands dirty with this topic, we’re going to begin by saying that this blog is created to give you a better understanding of fixed Vs variable rate mortgages, however the very best solution we can offer is suggesting that you contact our team of specialists at AG Mortgages. Our team has years of experience, and we can offer the very best up-to-date advice regarding your next mortgage, and help you secure one.

With that in mind, here are some broad stroke points you may be asking yourself.

Currently, in 2022 Canada’s inflation rate the highest it has been since 1991, and many financial experts anticipate the Bank of Canada (BoC) will be aggressive on rate hikes and raise interest rates. This suggests Canadian variable mortgage rates will probably increase this year, and that variable rates could see a 100-basis-point hike, while five-year fixed-rate mortgages could experience a 50-basis-point increase.

Robert Kavcic, an economist at BMO was quoted as saying “On the variable side, 100 basis points or more of BoC tightening is in the cards over the course of this year. For housing, the shift into lower-rate variable mortgages in 2021 kept the fire going, but the market will no longer be able to hide from higher rates this year,” “Incomes will grow too but, all else equal, it will be hard for prices to keep powering through that given where valuations already are.”

What Are The Differences?

Once again, broadly speaking, with a fixed-rate mortgage, the borrowers’ interest rate and payment remain the same over the course of the mortgage term, versus a variable-rate mortgage, where the homeowners’ interest rate will rise or fall based on the lender’s prime interest rate.

Both mortgages have their benefits, but which one is right for you?

With a fixed-rate mortgage, you know exactly how much to budget every month. The payment will never change during the full term of the loan, and you will also have an accurate date when the mortgage will be paid off.

Additionally, a fixed mortgage interest rate is generally higher than the variable mortgage, at first, and if you choose to end the mortgage prematurely, you will incur greater penalties than a variable rate.

A variable-rate mortgage usually has a lower interest rate compared to a fixed rate, however, if the prime rate is adjusted, so is the mortgage interest rate.

Which One Is Better?

Once again, we suggest you speak to us at AG Mortgages, and we will help you decide, and secure a fixed or variable rate mortgage that works for you. However, we can tell you that while many people like the stability of a fixed rate loan, but with the Canadian real estate market being as hot as it is, many homebuyers have opted for the variable rate and have enjoyed savings.