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When Will Variable Rates Stop Climbing?

For millions of Canadians, the Bank of Canada meetings are a major cause of anxiety. Will rates go up? By how much? Will I continue to be able to meet my monthly mortgage payments? It’s only natural to ask these questions. Recent hikes have been dramatic to say the least. And to make matters worse, the media has a way of making everyone feel like these hikes are in a perpetual uphill climb. 

But in my opinion, a plateau is coming sooner than expected. 

A Refresher on Rate Hikes

To understand why rates might start to level out, it’s important to remember why they’ve been skyrocketing in the first place. Prior to the pandemic, Canadians were used to the Bank of Canada rate going up or down by 0.25%, or not at all. Now we’re seeing drastic increases at every single announcement – some up to a full percentage point.

The idea here is to battle inflation caused by – you guessed it – the pandemic. Rate hikes are a surefire way to cool down red hot inflation, and given the out-of-control inflation we’re seeing, hikes of this magnitude are a necessary evil.

So Why Would Rates Stop Going Up?

Raising rates is necessary when inflation is high – but raising them too much can be disastrous for the economy. The housing market could crash. Insolvensies could skyrocket. So could the unemployment rate. Which is why it would be wise for the government to hit pause on hiking rates once they see that inflation is coming back down. Luckily for the Canadian government, it’s looking like that might be on the horizon. 

The inflation rate fell from 9.1% in June to 8.5% in July. Food, oil, and building materials like lumber have been coming down in price. These are all positive indications that rate hikes have been effective and that the worst of inflation is behind us. To avoid an economic catastrophe, and quite frankly bad press, the government is sure to start easing up on rate hikes over the next few announcements.

The Bottom Line

Rates will still continue to rise, but not for long. On September 7, I anticipate another hike between 0.50-0.75%. After that, or the next BoC announcement, a plateau seems highly possible. We could even see rates start to come back down again as early as mid-2023. For that reason, I still recommend variable rate mortgages to my clients – even though fixed rate mortgages are currently on the come down.

If you do decide to go down the fixed rate path, do not do it alone. Penalties on fixed rate mortgages can be way higher than variable rate mortgages, so make sure you consult a professional before doing anything.

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; steve@canadamortgagenews.ca

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