This rate hike was expected, as inflation remains high.

Many people at this point might be thinking it’s time to lock in to a fixed rate. Our response: Hold steady, stick with your variable rate mortgage.

Why?

• VARIABLE IS STILL LOWER. Most variable rate offers are still 1% to 1.5% lower than current fixed rate offerings. (Just check our best rates below). The bank is still being aggressive in calling for more rate hikes in the future to fend off high inflation.

• CONTROL. When you lock into a fixed rate with the 5 big banks, you risk having to pay gigantic penalties if you payout early. Newsflash! Over two thirds of mortgage holders refinance or switch their mortgage before 5 years is up. Why? 2 main reasons. First, Fixed (and even variable) interest rates will come back down, and you’ll want those lower rates when that happens. Secondly, 5 years is a long time. Before 5 years is up, you might need to refinance for a debt consolidation, you might move to a different home, or you might want to refinance to get cash out for an investment or renovation. Don’t lose control of your mortgage by locking in for 5 years. It really is a long time!

• FIXED RATES ARE AT THEIR PEAK! You wouldn’t purchase a stock when it is at it’s highest, especially if it’s expected to come down. In the short term, fixed rates are probably going to hold steady. But in the long term, rates will come back down. Prior to the pandemic, fixed rates hovered at 2.7% to 3%. It is my expectation that rates will come back down to this level.

For some people, it might take nerves of steel to hold on and stick with the variable rate. It still makes the most sense. Yes, there are more rate hikes expected by the BoC to fend off inflation. But remember, interest rates, and our economy act in a cyclical fashion. What goes up, always comes down.

At some point in the near future, variable rates will hover around the same level as fixed rates. At that point in time, demand in our economy will fall, and inflation will level off. Subsequently, in order to avoid a recession and high unemployment, the BoC will lower it’s rate. You’ll also see savings rates decline, which will bring our fixed rates down too.

At this point in the cycle, it’s about waiting out this period of higher rates. Hold steady and remember the points made above.

We always encourage our clients to ensure they have the lowest rate offering at the time. If you’d like us to review your current mortgage to see if you have the lowest rate possible, send us an email or call us. We will be happy to review your options with you, and see if a refinance or switch makes sense and can save you money.