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Should you choose a variable mortgage rate in 2024?

Rate hikes are over. Rate drops are coming. Will a variable rate help you save more — or sleep less?

The Bank of Canada has said interest rates are high enough now (you can roll your eyes). So, the wait is on for prime rates to start their drop and variable mortgage rates right along with them.

Your rate choice to weigh this year? Variable rate FOMO or JOMO.

Canadians may decide on a variable rate due to big-time FOMO — fear of missing out on interest savings and mortgage payment relief every time that rates decrease. With a fixed rate, you’d watch rates drop from the sidelines.

Or, there’s the JOMO choice. The joy of missing out on any risk that a variable rate poses while you happily lock into a great fixed rate and sleep soundly until you (ideally) renew into lowered market rates.

The thing is, many homeowners still have the jitters from enduring the fastest variable-rate rise in over 20 years.

But this rate type is worth a close look again, with the potential to save as much as $12K over the next 5 years (depending on mortgage size and when rates start to drop) compared to locking into a 5-year fixed rate.

Here's a reminder of variable-rate benefits

After the equivalent of 19 rate hikes (0.25% increments) since March 2022, the variable narrative has shifted back to its benefits during a period of declining rates:

  • Instant budget relief with each rate drop (with an adjusting-payment variable mortgage).
  • Amortization reduced with each rate drop, helping you pay off your mortgage faster (with a big bank fixed-payment variable mortgage).
  • Saving more over the life of your mortgage (historically shown to be the case vs. fixed rates).
  • Lock into a fixed rate at any time, penalty-free (depending on the lender). 
  • Pay less penalties than a fixed-rate mortgage if you need to break mid-term.

How fast (or far) might variable rates fall?

Some economists and experts, like True North Mortgage CEO Dan Eisner, predict prime rates might fall 1.5% by year-end and go at least another 0.5% lower the following year.

That's at least 8 rate drops (0.25% increments) within the next couple of years.

If we hit a recession, variable rates may decrease faster and further. If we rack up higher inflation, however, the risk is that the decline rate may be impeded or halted for a time.

Should you resist variable-rate FOMO?

Despite the strong allure of rate drops on the horizon — a variable rate isn't for everyone. 

Prime rates (directly affected by Bank of Canada rate decisions) may go up again if inflation doesn't continue to deflate, which may lead to 'rate regret' if you usually prefer the relative safety of a fixed rate.

Fixed rates have come down from their October 2023 peak, which may help you better handle locking into a fixed rate, choosing from your best term rates available.

Client choice is tipping to variable rates again.

Towards the end of 2023, with rate hikes looking closer to being over, True North Mortgage reports that a 5-year variable rate gained favour — at one point being chosen 58% of the time over the standard ‘safer’ choice of a 5-year fixed rate.

That’s in stark contrast to being shunned most of last year, sometimes chosen only 15% of the time. (The ‘normal’ ratio is about 60% for a fixed rate and 30% for a variable rate.)

A low short-term fixed rate may help bridge the uncertainty gap.

Do you need a budget break now and prefer a fixed rate? True North Mortgage offers low 6-month and 1-year Rate Relief™ products and a great 3-year rate. 

Their short-term mortgage rates may allow enough time for economic volatility to subside and rate drops to take hold, to (hopefully) renew into lower market fixed rates sooner.

Need a lower 'open' variable rate?

If you’re considering moving soon or want to put extra money down on your mortgage principal — check out True North’s exclusive No Commitment™ mortgage. It has all the flexibility and the lowest open variable rate in Canada

YOLO. Get your best rate to save the most.

You only live once (unless you have nine lives like a cat or Rick Astley), so you may as well save the most on your mortgage.

True North makes it easy and stress-free. Their friendly, expert brokers offer exceptional 5-star service, guaranteeing your best rate and finding the right mortgage product for your needs.

It’s worth getting unbiased mortgage help for your 2024 rate decisions — anywhere you are in Canada.

Give True North a shout RN, and they’ll BRB with your best rate and mortgage advice to save thousands, online or in-store. Contact Canada's No. 1 Mortgage Broker today.