What’s the difference between fixed and variable rates? With a fixed-rate mortgage, your rate is locked into place for a period of time called the term. The rate is typically a little higher but you will have the same mortgage payment for the term. If you break the mortgage, there are bigger penalties and you cannot switch from a fixed rate to a variable rate without breaking the mortgage.
With a variable-rate mortgage, however, the mortgage rate will change with the prime lending rate as set by your lender and decisions from the Central Bank of Canada. The rate is determined using a discount off the prime rate. You can lock the variable rate into a fixed rate at any time without breaking the mortgage. If you do break the mortgage the penalty is usually far lower.
It’s possible the Bank of Canada may increase the rates by 0.25% again which will increase PRIME rate and variable rate mortgages by 0.25%. However — fixed rates have come down just a little bit and that is good news. Fixed rates are going to enter a period here where they stay the same for a while or even go down a little bit more – either way we will enter a period of no longer being bombarded with the bad news of rate increases.
With regards to upcoming mortgage regulatory changes, these changes will not affect borrowing for 95% of people and will not affect the marketplace. OSFI is regulating the qualification formula for all types of loans so they are the same, which is the stress test that is already being used and 39% gross income towards the mortgage qualifying and 44% of gross income towards all debts in life including the mortgage.
It’s best to speak to your realtor and mortgage broker to determine what is best for your situation. Call me anytime to “talk Real Estate”!