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The Future Of Variable Mortgages: What You Must Know


If you have a variable-rate mortgage you would perhaps know how popular they had become post the outbreak of the pandemic in Canada. This kind of mortgage was chosen over fixed-rate mortgages because by being tied to the Bank of Canada’s interest rate, which was at its lowest in 2020 when there was a severe economic impact due to the closure of businesses. The fixed-rate vs variable debate began to gain heat in 2022 as the trends of the public opting for variable-rate mortgages began to change. You may be wondering what changed? When the Bank of Canada began a number of rate hikes which changed the policy rate by 4.25 percentage points, the so far popular variable rate mortgages were not the preferred ones anymore. It is to be noted that the share of variable rate mortgages went as high as 56.9% (during their peak) in early 2022. What do borrowers think? In our last blog, we shared that the central bank has put a hold on the series of rate hikes after a 25-basis-point jump in January. But it clearly said the pause will be dependent on external factors such as inflation and key economic indicators going in the direction which is required. If this remains the situation then the new variable rates wouldn't appeal to the public as much as the fixed-rate mortgages. RateHub.ca’s co-CEO and co-founder James Laird, said, "I think it requires a high-risk tolerance and a lot of conviction in your outlook to take a new variable rate right now because usually, variables start lower than fixed rates. So if nothing happens, you’re already saving money. In this case, your rate starts higher so you need to have a reasonable amount of conviction in rate cuts reasonably soon for you to think that that’s a better strategy. So I think to take a variable at the moment, you would have to feel that inflation is going to be well under control, that we’re going to hit those targets of 3% this year and 2% next year.” He said this in an interview with Canadian Mortgage Professional. Laird feels that variable borrowers know that a slowing economy will lead to “reasonably significant” rate cuts in 2024. This would make the variable rates go even lower than the fixed rates. If you have any questions or concerns about fixed or variable-rate mortgages, write to us at LendX Financial in Brampton, Greater Toronto Area.

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