Variable mortgages cost Canadians tens of thousands amid high rates. Is the risk worth it?
A recent report by Rates.ca suggests variable rate mortgage holders have paid thousands more in interest since rate hikes by the Bank of Canada began.
The company compiled data looking at the difference between fixed and variable rate mortgages, using an example of a five-year insured mortgage of $500,000 taken out in July 2021. The fixed-rate holder had a rate of 1.99 per cent, while the variable-rate mortgage was at 1.25 per cent.
Variable-rate mortgages are tied to the bank’s key rate and will rise or fall accordingly. The fixed does not change.
Jump to September 2023 and many rate hikes later, and the variable rate holder would have paid about 63 per cent more in total interest than the fixed-rate holder.
To look at it another way, the variable rate mortgage holder would have paid 227 per cent more in interest than if rates hadn’t spiked.
Following 10 rate hikes, Rates.ca found that the variable rate path cost $23,579 more, as of this month, in cumulative interest compared to what would’ve been paid if the rate had remained unchanged.
As the overnight lending rate increased, it took only six months for the variable holder to exceed the amount of interest paid monthly by the fixed-rate holder.
Rates.ca mortgage and real estate expert Victor Tran said while circumstances are different for every person, the report shows what the average Canadian has been facing with a variable rate mortgage.
“It’s not exactly what they bargained for. You know, they’re paying a lot more now,” he said in an interview with Global News. “Lots of regret in the market as well. You know, maybe they should have went for the fixed rate when that option was given to them.”
He noted, however, that there isn’t blame to be placed because it was the
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