Variable mortgage rates are becoming more popular in Canada
If you’re considering getting or renewing a mortgage, maybe it’s time to look at variable-rate options.
While fixed rates require unchanged monthly payments during your loan term, variable ones can change.
Variable rates depend on the prime rate, which is a rate that financial institutions offer their best clients. In case a bank raises or cuts its prime rate, mortgage payments will change according to a predetermined percentage spread. Such mortgages are considered more risky and less expensive, than the fixed ones.
Nevertheless, last year, the spread between fixed and variable rates was extremely small (0.2%), which made consumers prefer fixed-rate mortgages as they didn’t see the point in risking.
But this situation is expected to change due to these two factors:
1. The spread between fixed and variable rates is getting larger
The lowest 5-year fixed rate rose from 2.19% to 2.44% (or sometimes higher) since November 1.
In the same time, you can find a variable rate in Toronto as low as 1.90%. And such difference can be critical for some borrowers.