Interest rates in Canada have gone up a whopping eight times over the past year.
Homeowners with variable rates have been braving the storm, while those with fixed rates have been sheltered by their terms. These fluctuations have led many Canadians to wonder: “When, exactly, is the right time to lock in my interest rate?”
When it comes to locking in a mortgage, you’ll often have two choices to pick from, right from the start: a fixed-rate or a variable-rate.
As the name suggests, a fixed mortgage comes with a standard rate throughout a mortgage term. For example, if you secure a 3.1% interest rate for five years, you can expect your payments to stay the same until that time is up. On the flip side, a variable rate changes in response to the Bank of Canada’s changes to the country’s prime rate.
Because of the unpredictability of variable rates, they are generally lower than fixed mortgage rates. Fixed mortgages come with a lower risk than variable because your payments are the same, regardless of the prime rate. Switching from variable to fixed is easy, however switching from a fixed to a variable will typically result in a penalty fee.
The answer to this question really depends on your personal financial situation and risk tolerance. If you're someone who values stability and predictability, a fixed rate mortgage may be the better choice for you. You'll know exactly how much you'll need to pay each month, which can make budgeting and planning your finances easier.
On the other hand, if you're comfortable with a bit of uncertainty and are willing to take on a bit of risk, a variable rate mortgage could be best. With this type of rate, you could end up paying less interest over the life of the loan if interest rates fall. However, you'll need to be prepared for the possibility that your monthly payments could go up if interest rates rise.
If interest rates are on the rise, it may be a good time to switch to a fixed rate mortgage. With a fixed rate mortgage, your interest rate will remain the same for the entire loan term, even if interest rates continue to rise. This can provide peace of mind, especially if you're planning on keeping the loan for a long time. By switching to a fixed rate, you'll know exactly how much you'll need to pay each month, making it easier to budget and plan your finances.
If you value predictability and stability, switching to a fixed rate loan may be the right choice for you. With a fixed rate loan, your monthly payments will be consistent, making it easier to budget and plan your finances.
And if you're concerned about the economy and the potential for interest rates to fluctuate in the near future, a fixed-rate mortgage can provide you with a sense of stability and certainty. Similarly, if you experience fluctuations in your income or if you work in an industry that is prone to economic uncertainty, with a fixed-rate mortgage, you'll have the security of knowing that your payments will stay the same.
This can all be particularly important if you're buying a home in a volatile market, if you’re close to retirement, or if you're planning on making a large purchase in the near future.
If your budget is tight and you're finding it difficult to keep up with your monthly payments, switching to a fixed rate loan may help. A fixed-rate mortgage can make it easier to budget and plan your finances. Since your payments are the same each month, you can better predict your expenses and plan accordingly. This can provide peace of mind and help you avoid falling behind on your loan payments.
If you're considering switching from a variable rate to a fixed rate loan, it's important to consider your personal financial situation and risk tolerance. A fixed rate loan provides stability and predictability, while a variable rate loan offers the potential for lower interest payments if interest rates fall. Whichever option you choose, make sure to shop around to find the best deal. And if you’re ready to lock in, fill out Pine’s quick-and-easy application, so we can get you in touch with a mortgage agent to help you with the switch.