The two most common questions we get asked are:
- When do you anticipate the interest rates will come down?
- Should we take a Fixed or a Variable Rate Mortgage?
While we stopped making rate predictions in 2023. If we consider historical data, we can all agree that the rates always come down, no matter how unrealistic that scenario currently looks. We can certainly look at previous rate cycles to better understand how to position ourselves going forward.
Let’s take a look at the chart below showing rates of 5-year fixed-rate mortgages:
Interest rates trend upwards until there is an economic disruption prompting the central banks to start lowering the rates. This happened every single time.
We can make the following key conclusions simply by looking at the chart of previous rate cycles:
- clients who locked in a 5-year fixed rate mortgage at the peak of rates in 2018/early 2019 ended up renewing their mortgages at peak rates again in 2023.
- clients who locked in a 5-year fixed-rate mortgage at the bottom of rates in 2016, ended up renewing their mortgages at the bottom of rates in 2021.
Want to take a Variable Rate Mortgage, but cannot afford any increases to monthly payments?
Here is an interesting observation: clients who chose a Variable Rate Mortgage at each of the previous peaks of rate hikes ended up benefiting from rate cuts in subsequent years:
- clients who took a Variable Rate Mortgage in 2018/early 2019 enjoyed significant savings in interest payments throughout 2019-2020-2021-early 2022.
- all Variable Rate Mortgage holders had an opportunity to secure a fixed rate mortgage below 2% in 2020/2021.
Most major banks offer Variable Rate Mortgages where payments do not change, even if the Prime Rate changes. The allocation between paying off the principal amount and the interest portion changes.
This product provides homeowners with the certainty of monthly payments remaining the same should there be a rate increase, while taking advantage of the flexibility of having a Variable Rate Mortgage.
Should there be rate cuts in the future, the homeowners will benefit from interest savings whereas fixed-rate mortgage holders will continue making the same payments despite the cyclical rate cuts.
Do you have any mortgage or interest rate related questions?
Reach out to our team of experienced professionals at Access My Home Equity today for a free consultation:
Email: info@accessmyhomeequity.ca
Phone: 604-362-4467
Follow us on Instagram for more information, and check out our other posts featuring more industry updates and client success stories.