In the most recent review of the Bank of Canada interest rate, it was decided once again to hold steady at 0.25%. Perhaps more newsworthy, was the suggestion that rates will be going up in the new year. It is the later part of the announcement that has a created quite a lot a media hype and anxiety in our - dare we say - “Post-Pandemic” economy.

Let’s start with a little perspective on the “Pre-Pandemic” rate scene, rates were already at an all time low, in fact if you secured a mortgage in early 2019 the term “historically low rates” may have come up. Now, one pandemic, and 6 rates drops later…those “historically low rates” got even lower.

Does it make sense that now in our “Post-Pandemic” Economy rates are expected to go up? Simply put, yes it does. Can we predict where rates will go? Unfortunately, not.

Here is what we have calculated for the “break even” on the variable vs. fixed using an interest rate of the current 2.74% uninsured fixed vs. 1.45% uninsured variable. The below chart reflects 10 increases over the 5 year (60 month) term. This is approximately how many increases would need to occur for your fixed rate and variable rate to have performed the same, with half of those increases occurring prior to the 2.5 year (30 month) mark.

But the real question, is it realistic to expect the Bank of Canada to increase the overnight interest rate 10 times and for 5 of those to occur prior to the two-and-a-half-year point? We particularly ask ourselves this question keeping in mind that to see the true effects of any rate changes in our economy, economists indicate it takes between 18-24 months.

Two-thirds of Canadians break their mortgage prior to the end of their 5-year term. Variable vs. Fixed rate can have significantly different penalties. Any and all rate calculations, comparisons and predictions will pale in comparison to the harsh reality of a $20,000 penalty from a fixed rate mortgage with a major bank. If you are planning to purchase, or think you may refinance your mortgage in the coming years, remaining in the variable rate will offer you much more flexibility with a lower penalty and it would be incredibly unlikely for the fixed rate to drastically outperform the variable rate over the next 5 years, if at all.

Although we can’t predict where rates will go, we can help educate you on not only the rates going in, but the rates going out of a mortgage, and ensure that you have the best fit and mortgage product for your needs.