With variable mortgage rates at levels we haven’t seen since the dawn of the century, mortgage holders should manage their variable based on cash flow, safety net and stomach for risk
this fall. That, and falling inflation, have people thinking that prime rate has topped out.
Well, assuming one plans to stay in their home and can afford their payments, the two most obvious options are: do nothing and ride the variable-rate wave, or break one’s variable mortgage early and move into a cheaper fixed rate.People don’t get a variable rate unless they’re prepared for rate volatility. Or at least, they shouldn’t.Prime rate has soared 2.7 times since March 1, 2022 – an all-time record among proportionate rate increases. And it did that in less than 12 months.
Suppose you’re a well-qualified borrower with an uninsured variable mortgage at 5.7 per cent – i.e., at prime minus 1 per cent. The lowest nationally available one- and two-year fixed rates are currently 5.74 and 5.54 per cent, respectively. Even if you have a subpar variable discount like prime minus 0.4 per cent, or you find an insured one or two-year fixed at the nationally leading rate of 4.64 per cent, it still makes little sense to break and refinance. The best bet is to see how rates shake out in the months ahead and re-evaluate.We’re starting to see five-year fixed rates approach levels that are one percentage point lower than most existing variable rates.
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