Is This the End of Rate Hikes?

The last few months have been tough to say the least. Variable rates are at their highest levels in 20 years. The prime rate has gone up 4.25% in less than 12 months. Every Bank of Canada announcement feels like it could be another 50 point jump. If you’re a homeowner, it’s seemingly never ending. The news certainly doesn’t help you feel otherwise. But if you take a look at what’s happened in the past, you’ll see that the time we’re in isn’t so unprecedented. We’ve been here before and we’ve gotten out of it – and I believe we’re doing it all over again.

The Proof Is In the Past 

Every time the Bank of Canada has raised their rates quickly, they’ve lowered them quickly. Things are due to level out and eventually come down. And it’s not just me who thinks this – there’s a general consensus that rates will start falling by 2024. A major Canadian lender I work with even commented recently that they believe the bank prime rate will fall towards the end of 2023. 

Look To Fixed Rates For Validation

One of the most popular mortgage products right now is the short term fixed rate mortgage. In my mind, the message from this is clear: nobody wants to lock into a 5-year fixed rate mortgage because nobody wants to be stuck with a skyhigh rate for that long. 

When rates start to come down in the next 12-18 months, and they inevitably will, those with a 2-year fixed rate mortgage (for example) will be able to take advantage of those decreases. The popularity of this kind of product proves that homeowners and real estate professionals are confident rates will drop within the next two years.

Don’t Fall For the 5-Year Fixed Rate Trap

Many Canadians don’t look at the data. They see rates rising, and they think they’re just going to continue rising. They’re scared. So what do the big banks do? They capitalize on that fear. They call and tell people they can lock into a “special” 5-year fixed rate mortgage that will put an end to rising rates. 

My advice? If the bank calls, hang up. Call me to explore all available options, not just what the one bank has. It might make sense in the short term to lock into a rate when rates are rising; but you don’t want to be stuck with a sky high rate in 2 years when rates are expected to fall. Rates will inevitably come down, and a 5-year fixed rate mortgage will prevent you from taking advantage.

The Bottom Line

I have recommended variable rate mortgages to my clients for decades. It appears rates have plateaued.  We’re in for a pause this year. A short term fixed rate mortgage is also a great option. But just anything else, everyone is different. Make sure you’re consulting a mortgage professional before you make any big moves that could cost you thousands.

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