Many clients ask whether they should go with a fixed or variable rate and most times there is a clear winner; however, right now it’s a bit of toss-up as it really depends on one’s risk tolerance and need to have flexible terms over the next few years. If you know that you are not going to be moving for the next 5 years and are not a fan of increasing rates, then fixed is the way to go.
As widely expected, the Bank of Canada raised the benchmark rate to 1.75% this week, but more importantly, they wrote “Governing Council agrees that the policy interest rate will need to rise to a neutral stance to achieve the inflation target”. In saying this, the Bank of Canada means they will be moving towards a rate of 2.5-3.5% and we can expect a minimum of 3 more increases over the next 12 months and as many as 7 before the next recession (whenever that may be). The major banks have remained steady with their variable rates at prime – 0.7%, and monolines are still offering rates as low as prime – 1.24% on insured and insurable mortgages. Many consumers are taking the variable option with such deep discounts. We still see the discount offered on variable mortgages to remain flat over the next few months, even though prime is expected to increase 0.75% in 2019, bringing variable rates to the 4% range.
Over the last 30 days most lenders raised rates at least once and given the outlook from the Bank of Canada, it is widely expected that there will be more increases over the next few months as fixed rates keep up with rising variable rates. Over the next 12 months, we would not be surprised to see fixed rates 0.5-0.75% higher, however we don’t expect to see any more major increases until the end of 2018. There are still lenders offering as low as 3.19% for a 5 year fixed insured mortgage, but most lenders are currently between 3.44% and 3.79% for insurable and uninsured mortgages.
Shawn Stillman, CPA, CA
Mortgage Outlet Inc. #12628