Let’s take a deep dive into the benefits and potential downsides of fixed-rate mortgages and variable-rate mortgages as well as current rates, trends and predictions for 2025.

Fixed Mortgage

1. Stability and predictability: A fixed mortgage is like locking in your mortgage rate. No matter what happens to interest rates in the broader economy, your rate, and therefore your monthly payments, stay the same. This can be particularly beneficial if you expect interest rates to rise, or if you value the certainty in your household budget.
2. Long-term planning: With fixed payments, it’s easier to plan your finances over the long term. You won’t have any surprises with fluctuating monthly payments, which can be comforting if you’re on a strict budget.
3. Slightly higher initial rates: Fixed rates can start out higher than variable rates. You’re essentially paying a bit more for the security and peace of mind that comes with fixed payments. It’s like insurance against potential rate hikes.

Fixed Mortgage Rates

• Current rates: Average fixed mortgage rates are currently just 6.49% for 5-year terms.
• Trends: Rates have plateaued recently and may even be on their way down. Some lenders are offering rates under 5% for 5-year fixed-rate mortgages, depending on borrowers’ creditworthiness.
• Predictions: Industry experts anticipate further interest rate cuts in 2025 and into 2026, which could lead to further reductions in fixed mortgage rates.

Variable Mortgage

1. Potential for savings: Variable mortgages typically start with a lower interest rate than fixed mortgages. If interest rates remain stable or decrease over time, you could save a significant amount of money on interest payments.
2. Flexibility with market changes: If you’re comfortable with some level of risk, a variable mortgage can be advantageous. Your payments could decrease if the market interest rates fall, providing some relief on your monthly budget.
3. Rate risk: On the flip side, variable mortgages come with the risk of rising rates. You should consider how well you can handle potential increases in your monthly payments if interest rates go up. We have seen rates rise significantly over the past two years.
4. Short-term benefits: For those who plan to sell their home or refinance in the near future, a variable mortgage might be more appealing due to the initial lower rates and reduced penalties to break a variable rate mortgage over a fixed rate mortgage.

Variable Mortgage Rates

• Current rates: Variable mortgage rates are directly tied to overnight bank rates, which have dipped to 5.95%.
• Trends: Variable rates are expected to be lower than fixed rates over the next couple of years.
• Predictions: With the Bank of Canada hinting at potential rate cuts, variable rates may decrease further, offering potential savings for borrowers.

Key Considerations

• Risk tolerance: We emphasize the importance of understanding your own comfort level with risk. If fluctuating monthly payments will cause you stress, a fixed mortgage might be the better option.
• Market predictions: It’s important to keep an eye on economic trends. If experts predict rising interest rates, locking in a fixed rate now could save you money in the long run.
• Financial goals: Your long-term financial goals and stability play a crucial role. If you’re planning on staying in your home for many years, predictability might be more valuable to you.

Ultimately, your decision boils down to balancing your individual financial goals, risk tolerance, and market conditions.