As interest rates have fallen consistently over the last few months, many homeowners and buyers ask an important question: should I choose a fixed or variable rate mortgage? Let’s break down what’s driving these rate changes and what you should consider when making your decision.
Why Are Interest Rates Falling?
The recent drop in interest rates is largely driven by signs that the economy is slowing down. Economists and the Governor of the Bank of Canada are looking at economic indicators in hindsight to predict where things are heading. While inflation has come down to more manageable levels, the cost of living remains high. That said, the good news is that fixed mortgage rates have decreased significantly, with typical rates around 4.5%, which is a welcome relief for many buyers.
Fixed vs. Variable Rates: What’s the Difference?
As of now, variable rates are still hovering just over 5.5%, which is quite a bit higher than fixed rates. Which should you choose?
- If you believe the economy will slow down more dramatically and that the Bank of Canada will continue cutting rates, then a variable rate may be the right choice for you. The advantage of going with a variable rate is that if rates drop further, you’ll benefit immediately and you can always lock into a fixed rate later, at no cost.
- If you prefer the immediate savings and stability of a lower fixed rate, that could be a better choice for you. You can lock in a rate now and some lenders even offer an early renewal option. This means that if rates fall further, you could lock in a new, lower rate before your term ends, though there may be penalties.
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The Risks and Rewards of Locking In
If you opt for a variable rate with plans to lock in later, it’s important to remember that locking in at the right time can be tricky. Lenders may not always offer their best rates when you decide to lock into a fixed rate, and timing the market can be difficult. You’ll also need to be comfortable starting off with a higher monthly payment in the short term with a variable mortgage.
On the flip side, going with a fixed rate gives you stability and the peace of mind that your payments won’t change—even if the economy surprises us and rates rise again.
There’s no one-size-fits-all answer when it comes to fixed versus variable mortgages, and your decision will depend on your personal situation. Please reach out with any questions regarding the Canadian government’s announcements. If you’re looking to get pre-approved for a mortgage to buy a property in Edmonton, fill out my online application. I’m here to help you every step of the way.
About Jason Scott, Edmonton Mortgage Broker
Looking for a personalized mortgage solution? As an Edmonton Mortgage Associate, I’ll be your trusted partner who will help you get the right mortgage for your family home or Investment property. I’m Jason Scott, and I’ll be your Mortgage Broker in Edmonton.
