The bond market expects the Bank of Canada's next move to be a rate hike, but not until the end of next year.
Will that be enough to actually stop borrowers from rolling the dice on a variable? Surprisingly often no.
People are still turning to variables in droves, in part to get some rate savings upfront. They expect Canada's economy to be weak enough to keep major interest rate hikes in check, even as the Bank of Canada signals a possible bottom in interest rates.
And many rely on the “security” of fixed payments to protect their variable mortgages from possible interest rate increases.
Explainer:
When interest rates rise, variable rate mortgage (VRM) payments stay the same, but you pay more interest and less principal. This works until the interest rates rise so high that you can no longer cover the interest. Then most lenders will increase your payment immediately. In comparison, payments on an adjustable rate mortgage (ARM) always rise and fall with a lender's base rate.
This penchant for variables all sounds eerily similar to what happened in 2021-22, when more than 50 percent of mortgage buyers chose to float, just before the steepest rate hike cycle in decades.
In any case, despite the sharp rise in bond yields (which is driving up fixed rates), mortgage buyers still have good options.
Among lenders advertised nationally, Pine's lowest uninsured five-year fixed rate is 4.09 percent for closings within 45 days (otherwise, add five basis points).
For shorter maturities, we saw two-, three- and four-year uninsured fixed interest rates increase by 15 to 35 basis points this week. And insured two- to five-year fixed interest rates increased by five to 20 basis points.
Net-net fixed rates currently cost about 40 basis points more than floaters. But insurance always comes at a price, and if markets suffer from inflation in 2026, that price will only rise.
Robert McLister is a mortgage strategist, interest rate analyst and editor of MortgageLogic.news. You can follow him on X at @RobMcLister.
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