Should you choose a variable rate in 2021?

Posted November 5, 2021

Variable rates have a long way to climb, before they stop making (savings) sense.

We all know by now that the Bank of Canada (BoC) has indicated it'll start raising its historically-low benchmark rate around the middle quarters of 2022. (Assuming all the current economic factors aren't derailed further by that point, of course.)

So the big question is: Do you think that the Canadian government is going to risk damaging the economy with unrealistic rate increases in the next while?

The government will need to strike a balance between cooling down inflation and not sending Canadian home owners into mortgage-shock with overly-steep increases. There's been lender-talk that the BoC may make anywhere from 5 to 8 prime-rate hikes over the next couple of years, which current variable rates could realistically absorb over a 5-year term.

So even with these potential increases — getting your variable rate mortgage, renewal or refinance now will still likely net out a stash of savings compared to our current (higher) 5-year fixed rates.

We just lowered our variable rate, again.

With our variable rates at rock-bottom, the difference compared to our fixed rates is about as wide as it's ever been. Our very-lowest variable-rate mortgage does comes with a few restrictions, but we also have a great low-rate product that offers more flexibility, for those who want a few more options. (You'll need to qualify according to the latest government stress test.)

Right now, you'll have an excellent opportunity to grow your savings, or put more down on your mortgage to pay it off faster. In fact, stashing your cash savings from your variable rate will also help protect against future rate increases.

Check out our current rates here.

Clients are definitely noticing our variable rate mortgage products.

With variable rates looking this good, over 53% of our clients have recently taken advantage of our 5-year variable-rate mortgages. That's a significant change, as we usually see about 25% of clients choose a variable rate, versus around 75% who prefer our fixed-rate products.

Their choice of variable-rate mortgages is the result of two key factors:

1. Variable rates are currently at an all-time low.
2. Fixed rates have recently increased, upping the difference between our two rate types to over 1.3% (comparing 5-year terms).

Why such a difference between variable and fixed rates?

Variable rates are tied to the Bank of Canada overnight lending rate, currently at rock-bottom due to pandemic-related economic pressures.

Meanwhile, fixed rates have set sail along with increasing government bond yields, widening the difference between our discounted 5-year variable rate and our popular 5-year fixed rate.

Related: Variable vs. Fixed Rate Mortgages

What happens if variable rates go up?

If you get a low 5-year variable-rate mortgage right now (get pre-approved to hold your best qualifying rate for up to 120 days), there's still room for several upward adjustments to keep you on the side of savings.

However, even though signing onto a variable rate mortgage comes with more savings, it also comes with more uncertainty — as your mortgage payments will change along with rate movements.

Ask yourself if you're willing to adjust to those budget changes if variable rates go up, to potentially save more overall during your term.

Depending on your mortgage product, you may still have the option to switch later. We have a great True North Mortgage discounted 5-year variable rate that comes with flexible options and lower pre-payment penalties. If at any point you want to lock in to a fixed rate later, it may still factor into saving more over your term.

Are fixed rates still a good option?

Yes, if you like consistency in your mortgage payments, or prefer more certainty in managing your rate-risk.

Despite the recent increases, fixed mortgage rates are still lower than at the beginning of 2020 (an average of 2.83%), and even lower than the end of 2018 (an average of 3.59% back then).

The time for the lowest fixed rates has already passed. But, our current fixed rates are still a good option for those who want the stability of knowing what their monthly mortgage payments will be, and how much they'll put down on principal by the end of their term. Some clients just won't sleep well at night unless they're locked in with a fixed rate.

• Many of our clients are still choosing our flexible True North Mortgage fixed-rate mortgage products, at their best qualifying rates, to save over $3,000 on average.

• Take a spin with our Compare and Save calculator, to see how much more you can save with our better rates.

We can help you decide what rate works best.

Of course, predicting the exact future of rates would involve time travel (and who wants to mess with that).

As to how much rates will go up, or when — our expert brokers stay on top of the latest news and whispers to guide you through these shifting times. We'll outline your best rate scenarios, and help take into account any changes that may occur along the way.

Right now, the story is all about our variable rate mortgage — worth looking at for higher savings over your term.

Give us a shout. We're always here for advice on your best mortgage strategy, anywhere you are in Canada.