Bruce Cram - Real Estate

Is a fixed interest rate better than a variable right now?

For the last decade, those homeowners who chose a variable interest rate on their mortgage had an advantage over those who chose fixed.

Recently this has changed.

For those who are either considering to buy or have a renewal coming soon, deciding between a fixed or variable rate seems to be a choice between two evils.

Fixed mortgages are tied to the 5 year bond yield.

Last week, after the chairman of the US Federal Reserve, announced his interest rate plan for the next 3 years, the Canadian 5 year bond yield fell.

In Canada we're now seeing fixed interest rates lower than we’ve seen in 2 years.

The advantage of a fixed rate is that you can set your budget for a period of time.

Regardless of what happens in the economy or around the world, you will have predictability in your payment.

An attractive feature of the variable rate, with most banks, is that you can convert it to a fixed rate at any time.

Currently the variable rate is higher than the fixed rate. Expectations are that in 2024 the Bank of Canada will lower their overnight lending rate by 0.75% to 1%.

This will likely keep the variable rate higher than the available fixed rates in 2024.

Nobody can predict what will happen for sure. If you feel the fixed interest rates will come down even more in the future, then to be able to convert your variable rate to a fixed rate may be appealing.

Do you prefer taking a risk of higher payments for 18 months so that you can lock in at a far lower rate in the future? Or is it better for you to be able to have payment certainty?

The answer may be different for everyone.

If you'd like to have a discussion to determine which interest rate strategy is best for your needs, send me a DM and let’s begin a conversation.