October 16 2023
Fixed-Rate vs. Variable-Rate Mortgages: Which is Better for Refinancing?
There’s no denying that the state of the economy over the past year has made everyone a little more cautious. Rising interest rates and inflation have driven mortgage payments higher for some while the cost of living is a burden shared by us all.
With that, it is essential for Canadians to cross their t’s and dot their i’s before making any financial decisions at this time. This includes choosing between a fixed or variable rate mortgage if you’re refinancing. Why is this important? Depending on which route you choose could potentially save thousands of dollars.
At this time, many homeowners are considering refinancing as a means to relieve some of their financial pressures. Refinancing can help in a few ways. For one, with rising rates, locking in a new rate could potentially shield homeowners from higher rates in the future, especially if they currently have a variable rate mortgage. A refinance also gives homeowners the opportunity to access equity in their home, which can be used to pay off lingering debt or any necessary home renovations. In other cases, a refinance might be a strategy to extend your mortgage term and reduce monthly payments to better grapple with the rising cost of living.
What you need to know about your options
Should you go with a fixed or variable rate?
No doubt one of the biggest questions when it comes to refinancing, each option carries with it a number of pros and cons. While fixed-rates may be a bit higher than variable, they offer peace of mind as your payments are locked in and unchanging throughout your set term. Variable rates on the other hand, are inherently riskier as they depend on Bank of Canada’s decisions.
Due to the record number of interest rate hikes by the Bank of Canada over the past two years, many Canadians nowadays lean towards fixed-rate mortgages. While we can’t say for sure when these rate hikes will end, in typical market conditions, variable-rate mortgages are favoured in that they offer more flexibility and can potentially save mortgage owners more money due to their lower rates.
What are some of our pro tips to help you decide?
Ultimately, there’s no correct answer and it just comes down to your personal choice. Considering the prevailing trend in Canada in 2023, we know that this may be a tough decision due to the lingering inflation pushing up all the rates. At Homewise, we help you explore your options and find a rate that will save you money so you can reach your financial goals. Reach out to our expert Mortgage Advisors now.
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