Variable Mortgage Rates Are Lower—but Is a Rate Hike Coming?

Markets Price a 70% Chance of a December Rate Hike

Canada’s economy rebounded, with second-quarter growth near 3.4% annualized. Economists expect no policy-rate change through 2026, but markets price a 70% chance of a Bank of Canada increase by December.

54% of Prime Borrowers Still Choose Variable Rates

Despite the risk, 54% of prime borrowers at Dominion Lending Centres chose variable rates in July. Leading variable rates were more than half a percentage point below comparable fixed rates, lowering monthly payments.

Variable Rates Cost Less—but Payments Could Rise

Core inflation averaged 1.85%, below the Bank’s 2% target. Variable mortgages also offer flexibility: borrowers can convert to fixed rates, while breaking a variable mortgage commonly costs only three months’ interest.

Attractive Fixed Mortgage Rates May Become Scarcer

Rate increases could arrive by year-end or during 2027. Risk-averse borrowers should compare fixed, variable and hybrid mortgages. Canada’s five-year bond yield is approaching a two-year high, potentially making fixed offers harder to find.

Source: Financial Post.