Is it time to lock in if you are in a variable rate mortgage?
With such a drastic increase to the Prime lending rate, many individuals are questioning whether now is the right time is to lock into a fixed rate mortgage. Before making this decision let’s look at some numbers.
Fixed rates have already increased across the board, with the largest 5 banks currently hovering around 5.34% - 5.59% for a new 5-year fixed mortgage. Variable rates are still lower and are currently hovering around 4.30% - 4.50% for a new 5-year variable mortgage depending on the lender. Most mortgage holders who took out a variable rate mortgage within the past two years will have a current rate between 3.90% - 4.30%.
However, it’s important to consider that Canadians with Variable Rate Mortgages have been the big winners and have paid significantly less overall interest for over a decade. Historically, those who take variable rate mortgages and stick with it save thousands more interest over their term compared to fixed rate mortgages.
Inevitably rates will rise. This also means that inevitably rates will come back down again. If you lock into a fixed rate now, you are committing to a higher rate for the duration of your term. When rates start to come back down again, you will see no benefit if you are locked into a fixed rate.
If you decide to lock into a fixed rate mortgage and rates start to come back down again, you could investigate refinancing to take advantage of a lower rate, however there will be a rather large pre-payment penalty to refinance your fixed rate mortgage, which brings us to our next topic of discussion, pre-payment penalties.