Canada's Mortgage Borrowers Face Uncertainty Amidst Global Tensions

With global uncertainty surrounding the Iran war and new tariff threats from the US, mortgage borrowers in Canada are wondering whether to opt for a fixed or variable rate mortgage.

Mortgage broker Victor Tran, based in Toronto, notes that despite investor expectations of a Bank of Canada rate cut due to potential inflation from rising oil prices, bond swaps markets predict a quarter-point rate hike by the end of 2026 and possibly one or two more hikes in 2027.

Tran suggests that homeowners should consider getting a fixed-rate mortgage due to the risk of variable rates increasing with even one Bank of Canada rate hike, making them either the same as or higher than fixed rates. This is because breaking a variable mortgage usually comes with a penalty of just three months' interest, whereas fixed-rate mortgages come with a more costly difference between the homeowner's mortgage rate and the bank's posted rate.

One exception, according to Tran, is for homeowners who plan to sell their home or make a large lump-sum payment toward their mortgage, as in this case variable rates may be more beneficial.