Fix or float is the big mortgage question as Bank of Canada rate cuts approach
This Wednesday could be a game-changer for family budgets everywhere. If not then, mark your calendars for July 24.
On one of those dates, financial markets believe the Bank of Canada will make its first interest rate cut in more than four years. The anticipated move would be financial Aspirin for a lot of borrowing headaches, and it comes after what Rosenberg Research founder David Rosenberg calls the “sharpest three-year interest rate surge in four decades.”
For those with adjustable-rate mortgages, cuts mean the savings should soon start adding up. On a conference call Tuesday, Scotiabank estimated that a 25 basis point drop in its prime rate could skim about $100 off monthly payments for big city borrowers.
As mortgage shoppers are increasingly bombarded with headlines about looming rate cuts, they’re bound to revisit the classic conundrum: to fix or to float?
Currently, it’s trendy to snag three-year fixed mortgages, as fewer souls are daring to commit to antiquated five-year terms ahead of a presumed rate-cut cycle.
Once the BoC pulls the trigger, however, floating rates should steal the spotlight. But is rolling the dice with them worth the thrill?
Forecasting rate trajectories is often a fool’s errand, but there’s one thing we can rely on: Economies are cyclical, and inflation ultimately succumbs to higher interest rates.
Given current mortgage rates and the latest forward rate expectations, as tracked by CanDeal DNA, the numbers lean favourably toward variables when assessing potential interest savings alone.
Should market rate forecasts hit near the bullseye (a rare spectacle, admittedly), a borrower with a standard $500,000 variable mortgage could theoretically save about $6,000 of interest over
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