Variable rates may have inched downwards after the Bank of Canada’s decision to lower its benchmark rate on June 5 – but even with further cuts expected for the rest of the year, there seems little chance of an imminent borrower surge towards those mortgage types. As the central bank slashed its trendsetting rate to a rock-bottom 0.25% at the onset of the COVID-19 pandemic, borrowers rushed to take advantage of ultra-cheap variable-rate mortgages, a trend that ground to a halt when the Bank rate (and as a result, bank prime rates) began to climb in early 2022. Borrowers have tended to prefer the security of fixed-term options in that rising-rate environment – especially fixed mortgages between one and three years, as reported by Canada and Mortgage Housing Corporation (CMHC) – to keep payments steady while also keeping an eye on the prospect of lower variable rates down the line. The Bank’s decision to bring rates down for the first time in over four years will have changed little in that regard, according to BlueShore Financial advisor Justin Prasad (pictured top). With the prime rate currently sitting around the 6.95% mark, borrowers would need a significant discount for a variable-rate mortgage to be a better option than a fixed-rate one, he told Canadian Mortgage Professional. “For a five-year fixed, you’re really looking at the low five [percents] now. And so really, if you’re taking a variable that’s prime minus one – which I’m not seeing at all – that gets you to what a five-year fixed is now. So now you’re on equal plains. “But then you’re really banking that over the next couple of years, that rate’s going to come down significantly, which it might – but it’s going to be a gradual process.” Even variable-rate options offering prime minus one half or quarter, Prasad said, will be less appealing to many borrowers in the current market than a short-term or five-year fixed-rate mortgage.
