For many years I was an advocate that fixed interest rates were best. I locked in my mortgage at the lowest fixed rate possible and felt fully at peace. No risk, no fear of rising interest rates, no worry. I ignored variable rate mortgages and wouldn’t even consider them.
Then came the time when I had to break a 5 year fixed rate term 2 years into my contract. Situations arose that would require me to move, so I really had no choice. Then fixed rate mortgages weren’t so good. I was charged with over a $20,000 penalty! I had to do my research so as to not get caught in that situation again. I had to consider the always scary variable rate mortgage.
Truth be told, it wasn’t that scary. Since 2016 the prime interest rate sat stagnant at 2.7%. It got its first bump by .25% in July 2017, pushing it to 2.95%. It had a few more bump ups until settling at 3.95% in October 2018. Even with the economy growing and jobs getting added the prime rate only went up 1% during those 15 months. It sat at 3.95% until March 2020, 32 months and only going up 1%. Then the world was faced with the situation of COVID-19 and prime took a tumble, all the way down to 2.45%.
In Canada we’ve been subject to low interest rates since 2020. With prime sitting at 2.45% and the bank of Canada expected not to introduce a rate hike until sometime in late 2022, (assuming there are no more interruptions). If you look at how we went 32 months and rates only went up 1% at a fully running economy with little uncertainty, I think we’re sitting in a good place now to do a variable rate mortgage.
Variable rate mortgages are sitting at about 1% lower than fixed rate mortgages. If past data is any indication of the bank of Canada pace to raise prime rates, your variable rate will always sit lower than fixed rates for the time being, which means more savings.