Mortgage rates have recently seen a dramatic shift, with fixed rates dropping and variable rates reaching a 15-year high. This news could be a boon for potential homebuyers, as it could mean lower monthly payments and more affordable housing.
Fixed mortgage rates are determined by the Bank of Canada and are based on the average prime rate. The prime rate is the rate at which banks lend to their most creditworthy customers. When the Bank of Canada lowers its prime rate, fixed mortgage rates tend to drop as well. This is exactly what has happened recently, with the Bank of Canada dropping its prime rate from 3.95% to 3.45%.
Variable mortgage rates, on the other hand, are determined by the lender and are based on the lender’s prime rate. As the Bank of Canada’s prime rate drops, lenders tend to increase their own prime rate in order to remain competitive. This has led to variable mortgage rates reaching a 15-year high of 4.25%.
For potential homebuyers, this shift in mortgage rates could mean big savings. Fixed mortgage rates are currently at their lowest level in years, while variable rates are at their highest. This means that borrowers who opt for a fixed-rate mortgage could save hundreds of dollars each month on their mortgage payments.
However, it is important to remember that fixed-rate mortgages come with less flexibility than variable-rate mortgages. Fixed-rate mortgages lock in your interest rate for the duration of the loan, meaning that if interest rates drop further you won’t benefit from the lower rate. Variable-rate mortgages, on the other hand, allow you to take advantage of any future drops in interest rates.
Ultimately, it is up to each individual borrower to decide which type of mortgage is right for them. Those who are looking for a low monthly payment and don’t want to worry about future interest rate changes may be better off with a fixed-rate mortgage. Those who want more flexibility and are willing to take on more risk may be better off with a variable-rate mortgage.
No matter which type of mortgage you choose, it is important to do your research and shop around for the best deal. With fixed mortgage rates at their lowest level in years and variable rates at a 15-year high, now is a great time to buy a home.