Variable Mortgages Now Look Attractive Amid Rising Fixed Rate Costs

Mortgage brokers Ron Butler and David Larock are warning that the benefits of variable mortgages may have changed. In recent weeks, five-year fixed mortgage rates have increased to around 4% from their previous rate in the high-3% range. Meanwhile, variable rates remain at 3.4%. This means that some consumers may find a difference of almost a percentage point between the cheapest variable and fixed rates they're offered.

Ron Butler believes that the neutral Bank of Canada interest rate is around 2.5%, and that if it raises rates above this, there's a chance that it will decrease again in the future. He argues that even if the Bank raises rates by one percentage point and holds them, consumers wouldn't be much worse off than with a fixed rate.

David Larock agrees that bond markets are currently pricing in negative expectations around the war in Iran and its impact on inflation. If the war ends, he believes there could be notable decreases to fixed rates.