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Four months have passed since the Bank of Canada‘s latest rate reduction, with no guarantee of another on the horizon. Policy is on hold while officials monitor inflation and play psychic with tariff headlines.
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Plenty predicted the economy would already be nosediving by now. Just a few months ago, markets forecast three more Bank of Canada rate cuts before Christmas. But job growth and stubborn inflation erased that fantasy — now they’re not even pencilling in a full single cut.
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At the same time, government bond yields — which typically guide most mortgage rates — have shot up to six-month highs. The Bank of Canada–leading two-year yield even sprinted above the overnight rate target for the first time in more than two years.
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Despite most economists claiming there are cracks forming in our economy, markets still think inflation has teeth. If traders are right and economists are wrong, further rate cuts could stay shelved for months — maybe skipped entirely this cycle.
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This prompts a key dilemma for certain variable-rate holders: should you lock in now or keep riding the rate waves?
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Reasons you might want to grab a fixed rate:
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- Variable-rate stress is wrecking your nerves.
- Your family budget can no longer bear the chance of sharply higher payments.
- Your lender will let you lock into a great fixed rate in the low fours — or better.
- You’re not likely to break that new fixed-term early, for example, by refinancing elsewhere or selling your home and not porting the mortgage to a new property. (Note: Sometimes lenders claim their mortgages are portable, but their actual rules or qualification criteria prevent it.)
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Reasons to stick with variable for now:
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- You’re mentally and financially equipped to handle rate volatility and uncertainty (hopefully, this is the case, given you picked a variable in the first place).
- You won’t be hanging onto your mortgage for long anyway.
- Your variable rate is much better than the best fixed rate you could get from your existing lender or another lender (after paying prepayment and refinance costs).
- You have a great variable rate with fixed payments.
- Your mortgage size is modest relative to your income.
- Your remaining amortization (time to pay off the mortgage) is short.
- There’s a decent chance you’ll need out before the fixed term ends, and fixed-rate penalties sting more than the usual three months’ interest on variables.
- Most variable mortgages can be converted anytime without penalty, so you can wait until the fog lifts on Canadian–U.S. trade policy.
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If you’re tempted to lock in, scout the best mortgage rates online first. Then contact your lender to confirm the lowest fixed rate they will offer you for the mortgage features you need, and haggle if needed.
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