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Variable Rates Go Up, Fixed Rates Come Down

If you’re reading this, you probably know by now: the Bank of Canada has been raising their benchmark rate aggressively to battle inflation. And I mean aggressively. Their rate has gone up by 2.25% in 6 months which is absolutely – wait for it – unprecedented.

As a result, variable rates have shot up. Everyone expected fixed rates to follow suit – but interestingly enough, the opposite has happened. They’ve actually gone down. Yup, you read that right: while variable rates are going up, fixed rates are going down.

How Is That Possible?

Fixed rate mortgages are priced against 5-year bond yields. The yield rate reached a high of 3.59% on June 14th. Only a month and a half later, that rate is now hovering around 2.82%. What does this tell us? Fixed rates are based on speculative factors. Investors anticipated rate hikes 6 months ago and priced them in early. Now, we’re on the other side.

Not long ago, most 5-year fixed rate mortgages were hovering at around 5.50%. As the yield rate falls, these fixed rates mortgages have fallen as well – some well below 5.00%.

What Should I Do?

On paper, you might see fixed rates hovering around 5% and variable rates hovering around 4% and think to yourself, “Gee, this seems like the perfect time to lock into a fixed rate. How can I lose?” To that I say, don’t think about the rates right now. Think about the rates in 2, 3, or 4 years from now.

Fixed rates may be going down, but that won’t last forever. I expect fixed rates to start going back up as early as next month. On the variable rate side, things may be rising at the moment, but they certainly won’t continue to rise steadily over 5 years – that’s just not how variable rates work. They’ll come right back down as quickly as they shot up. If you’re locked in at 5% for 5 years when that happens, you’re going to kick yourself for not thinking ahead.

The Bottom Line

There’s a lot going on in the world right now. The real estate market. Inflation. Interest rates. The list goes on. Even worse? The media never stops shoving those things in your face. It’s relentless. My advice is to take it all with a grain of salt. The media speaks to the masses, but you should always be considering your own personal situation before making a big decision.

First time home buyer? Jump on the opportunity to secure a home at a lower price. Your interest rate may be a little higher than it would have been a year ago. But zoom out. You’ll see that interest rates are still low relative to rates of the last 30-40 years.

Looking to buy an investment property? Be patient. There are good opportunities out there; but you have to find them. You may even find a property with positive net rental incomes. This is because fewer people are buying owner occupied homes due to the interest rate fears and fear of buying at inflated values.

Whoever you are, and whatever your goals are, think in years – not months. Hang onto your property for 5-7 years, and you’ll almost certainly see a return. Real estate is a long term investment. It may not be as sexy as crypto or the stock market; but unlike those investments, it’s almost always a sure thing in the long run.

Your best interest is my only interest. I reply to all questions and I welcome your comments. Like this article? Share with a friend.

Steve Garganis: 416-224-0114;

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