The popular strategy among Canadians approaching mortgage renewal these days is opting for a Variable rate instead of a short-term fixed rate, such as a 2- or 3-year fixed. The rationale behind this strategy is to take advantage of expected rate decreases by the Bank of Canada (BoC). The goal is to ride the variable rate down until it reaches around 2.50%, at which point borrowers can lock in a 5-year fixed rate for less than 4% in late spring or early summer 2025.
Mortgage Renewals - Todays Current Rates
3-Year Fixed Rate: 4.64%
Variable Rate: Prime - 0.70 = 5.50%
Perhaps the most unnerving part of this strategy is it involves ignoring the lowest fixed rate currently available. So is taking a higher rate today for a better rate tomorrow the right play??? Let’s analyze how the numbers compare in two scenarios.
*Assumptions
The Bank of Canada will cut rates by 0.25% at each of the next six announcements.
A 3.89% 5-year fixed rate will be available in late spring 2025.
Payment Comparison
As of Spring 2025:
Payments Made | Outstanding Balance | |
3-Year Fixed - 4.64% | $22,451.30 | $492,771 |
Variable - Prime - 0.70% | $22,152.59 | $495,423 |
Next, let’s see how the next 28 months play out with the outstanding balances.
28-Month Projection:
3-Year Fixed @ 4.64%:
Payments Made: $78,579
Outstanding Balance: $465,658
New 5-Year Fixed @ 3.89%:
Payments Made: $72,143
Outstanding Balance: $466,657
Conclusion:
By choosing the 3.89% 5-year fixed rate, you will save $6,436 in monthly payments. If you apply these savings to the outstanding balance, you could be ahead of the original 3-year fixed scenario by over $5,400. Additionally, you'll enjoy the stability of a 3.89% fixed rate for the next three years, providing peace of mind in a fluctuating market.
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