Many North East clients have been calling their brokers to ask whether they should stay with their variable rates or lock-in into a fixed rate.
Let’s unpack that question?
For example, the TD Bank is currently offering a conventional 5-year closed fixed rate mortgage posted at 5.64%. The TD is presently discounted it to 4.84%.
TD’s variable rate on a 5-year closed mortgage is posted at 3.30% – that’s 1.54% less than the discounted rate of 4.84%, and 2.34% less than the posted 5.64% rate.
Do we feel the Bank of Canada will continue to increase its policy rate, the short answer is yes! Canadians have a staggering amount of liquidity, and a pent-up demand for almost everything. Compound this with a supply chain that cannot keep up; all this spells continued inflation.
When will the Bank of Canada feel that it has a handle on inflation – your guess is as good as ours, but you can expect another rate increase in July of a minimum of 50 basis points – and some are speculating that this next increase could even be as high as 75.
People who currently have a variable rate mortgage have seen their payments increase in-line with the Bank’s increases. This trend is likely to continue. The good news is that even after the most recent hike, those rates are still low compared with pre-pandemic levels . For those just entering the market, it continues to be considerably easier to qualify for variable rates than fixed rates due to the current stress tests rules.
So back to the initial question, should you lock-in or stay with a variable rate?
Answer: ride it out, the payments are still lower, and in some cases as much as 2%.
If you have any questions or need further advice on what to do, call one of our brokers. They will gladly walk you through all the possible scenarios.
Martin Spalding
Mortgage Broker