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Fixed vs. Variable: Mortgage Rate Predictions for 2019!

In the fall of 2018, many economists predicted that the Bank of Canada would increase interest rates 3 or 4 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.

RBC recently 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 is often asked: “Should I get a variable or a fixed rate mortgage?”

Certainty vs. savings

For a rental property, preferably a variable mortgage. Not because of the reduced rate, but for the less punitive pre-payment penalty if you decided to sell before the end of your contracted term.

Historically, people save more money with a variable mortgage. That said, fixed-term mortgages offer price certainty.  Another variable to consider when deciding on fixed versus variable mortgages is the promotions being offered by lenders.  That’s a significant discount.  If Canada slows its pace of rate hikes — or even cuts rates — having a variable mortgage would have been the best choice.

If the forecasters are wrong, and rates spike; then you would have been better off with the price certainty of a fixed term. Unless you can predict the future, which even the experts cannot.

Can’t decide? Get both!
It wouldn’t be a surprise to see the Bank of Canada raising rates more than once in 2019. It also wouldn’t be a surprise if there is a cut in interest rates. It really depends on the extent of the slow down in housing and energy, and how these changes affect the overall economy.

Rates for fixed-rate mortgages are dropping and there is potential for further reductions. Money can flow out of the bond market just as easily as it flowed into it. If that were to happen, bond yields and mortgage rates would rise.

If you are unable to decide on the best mortgage for you—hedge your bets and get both.

Say you have a $400,000 mortgage, put $200,000 in a variable and the other $200,000 in a fixed. It is a strategy that is a lot less nerve-racking than flipping a coin.    Source: CBC News

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To learn more about Fixed vs. Variable mortgages and to see if you qualify, contact us today!  We can help you decide if a fixed or variable mortgage is right for you, and help you determine how much funds you may be eligible to receive.

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