Is the Variable Rate Making a Comeback?

Affordability on the Decline, But There’s Hope

While housing affordability remains a challenge, the situation is slowly improving. We’ve passed the peak in unaffordability, and prices are starting to come down. This gradual shift has sparked some optimism, especially with recent moves from the Bank of Canada.

"Affordability is still not great, but it’s coming down."

For many Canadians, there’s a sense of relief in the air, even though the market remains unpredictable.

Bank of Canada’s Interest Rate Moves – What You Need to Know

The Bank of Canada recently cut its overnight rate from 4.5% to 4.25%. That small shift has real impacts on mortgage rates:

• Prime rates: Dropped to 6.45% (unless you’re with TD, where it’s still a bit higher).
• Variable-rate mortgages: For new mortgages, this could mean about a $14 reduction per $100,000 borrowed.

While these changes might seem small, they add up over time, and people are paying attention.

"It’s a significant departure from where we were just three months ago."

Are Variable Rates Sexy Again?

Despite the sting many felt from variable rates in 2021 and 2022, they are making a comeback. Here’s why:

1. Lower Rates: We’re seeing rates dip below the mid-5% range, making variable rates more attractive.
2. Bond Yield Fluctuations: The bond market has been volatile, but recent dips are pushing banks to adjust their rates.
3. Fixed Rates vs. Variable: While fixed rates haven’t dropped as aggressively, variable rates have started to look like the better deal for some borrowers.

"The gap is closing, and people are starting to take a second look at variable rates."

What About Fixed Rates?

Fixed rates are expected to decrease, but the big question is, how fast? The bond yield drop has already started pushing banks to adjust their offerings, but the changes are gradual. For now, fixed rates aren’t dropping as quickly as many had hoped, but it’s just a matter of time.

• Key takeaway: Patience is essential, especially if you're waiting for rates to drop into the 4% range.

Looking Ahead: Rate Forecasts for 2025

If you’re considering taking out a variable mortgage now, here’s what the forecasts suggest:

• 12 months from now: Rates could drop by as much as 1.5%.
• Two-year timeline: Rates could be 1.75% to 2% lower than today, bringing the overnight rate to around 2-2.25%.

For many, these projections are why the variable rate option is looking attractive. If rates continue to fall, you might be able to refinance or lock in a lower fixed rate in the future.

"In 12 months, we could be looking at rates under 5% – that’s huge for anyone considering variable rates today."

Renewal Debt Cliff: A Myth?

There’s been a lot of talk about a looming "renewal debt cliff," but the reality is a bit different. Most renewals aren’t even up until next year, and by then, rates could be significantly lower.

• Refinancing: By 2025, if rates drop as predicted, the impact on monthly payments could be far less dramatic than feared.

"This whole debt cliff situation? It’s overblown. Most renewals won’t cause people to lose their homes."

Is Now the Time to Buy or Stay the Course?

For those in the market right now, especially with a variable-rate mortgage, the advice is simple: stay the course. If you don’t absolutely need to refinance or lock in a fixed rate, waiting could work in your favor as rates are expected to drop further.

Here’s what to consider:

1. Do you qualify for more money? If you opt for a variable rate, you’ll still need to qualify at a higher rate.
2. What’s your goal? Are you buying your first home or upsizing? Your personal situation plays a huge role in whether to jump in or wait.

"Unless you have to act now, it might be worth waiting until 2025 when rates could be even lower."

Market Trends: What’s Happening Now?

While some areas of the housing market are still facing challenges, particularly in the condo and pre-sale sectors, we’re seeing recovery in others. Detached homes, especially in desirable areas, are continuing to sell, driven by land scarcity and demand from families ready to upsize.

• Investment properties: Investors are starting to re-enter the market, betting on future rate drops and ongoing supply issues in major markets.

"We’re seeing more and more investors reach out, forecasting what a conservative rate drop could do for their monthly payments."

Final Thoughts: What Does This Mean for You?

With rates slowly dropping and the variable rate becoming more attractive, it’s a good time to weigh your options. Whether you're looking to buy, refinance, or hold off for a bit longer, the key is understanding how these changes impact your financial situation.

• Don’t rush: If you can afford to wait, 2025 could bring even lower rates.
• Stay informed: Keep an eye on the market and adjust your strategy accordingly.

The housing market may still be tough, but with the right information, you can make smarter, more strategic decisions moving forward.

"Rates are dropping, and the future is looking brighter – just make sure your strategy aligns with your financial goals."