Canada's Variable Mortgage Rates Soar Amid Rate Hikes

Variable mortgage rates are experiencing a moment in Canada, with discounts improving noticeably in recent weeks. This follows a trend where variable rates tend to increase when markets start pricing in near-term Bank of Canada hikes. In fact, some lenders have been advertising prime rates as low as 0.90 per cent (3.55 per cent) or better, undercut by regional players at prime minus one per cent (3.45 per cent).

This is a significant change from just a few months ago when these rates were 20-plus basis points higher. And if your mortgage is insured, you can lop off another 15 to 25 basis points. The gap between fixed and variable pricing has stretched like taffy, standing at roughly one percentage point today.

Despite the rate-hike talk, around half of borrowers are still choosing variable rates. Their reasoning includes the upfront savings being real and immediate, hoping that the Bank of Canada won't hike more than the market is implying (125 to 150 basis points), qualifying easier with a variable due to government rules, cheaper variable prepayment penalties if plans change, and possibly having better luck this time around.