Fixed vs variable mortgage rate predictions in 2019
Monday Jan 21st, 2019
In the fall of 2018, many economists predicted that the Bank of Canada would increase interest rates three or four times in 2019, but that's no longer the case. The global economy appears to be slowing and rarely do central banks increase rates when an economy is struggling.
Any slowdown in rate hikes would be welcome news for those holding a mortgage or loan linked to the prime lending rate.
If you are considering a fixed rate mortgage, there is good news for you as well.
This week, RBC announced a reduction in their five-year fixed mortgage rate. Fixed rate mortgages are correlated to bond yields — if yields drop so should mortgage rates. Bond yields have been dropping for a couple months now so it is nice to (finally) see mortgage rates following suit.
A question that I am often asked is, "Should I get a variable or a fixed rate mortgage?"
I use both.
Certainty vs. savings
For my rental property, I prefer a variable mortgage. Not because of the reduced rate, but for the less punitive pre-payment penalty.
Because I never know when I'm going to sell my revenue property, I'd rather be in a mortgage that won't punish me too badly if I decide to sell before the end of my contract
And historically, people save more money with a variable mortgage. That said, fixed-term mortgages offer price certainty.
When rates started to increase in 2017, I decided to convert the variable mortgage on my principal residence into a seven-year fixed term mortgage. I'm okay paying a little extra for the added peace of mind. I have no intention of selling my home, so I don't have to worry about pre-payment penalties, and I have seven years worth of price certainty.
Another variable to consider when deciding on fixed versus variable mortgages is the promotions being offered by lenders.