There's still no one-size-fits-all solution, broker emphasizes, despite chance of much lower rates later in the year
Five-year Government of Canada bond yields have seen a huge slide over the past two weeks, while the growing threat of a trade war has spurred speculation that the Bank of Canada will cut its own rate by even more than initially expected in the months ahead.
That means the picture appears to be brightening for both fixed rates, which are heavily impacted by the direction of bond yields, and variable options, which rise and fall in tandem with the central bank’s benchmark rate.
But there’s still no easy answer to the question of which mortgage rate type is the better option for Canadian borrowers, according to a Toronto-based broker who said the best decision still depends hugely on each person’s individual needs and financial circumstances.
Frances Hinojosa (pictured top), chief executive officer and co-founder at Tribe Financial, told Canadian Mortgage Professional borrowers should stay focused on their own financial goals and risk tolerance instead of tuning into the recent noise about where rates may be headed.
“There’s nothing wrong with predictions and there’s nothing wrong with using that information factually to make sure you have peace of mind in your selection and choice in your mortgages,” she said.
“But for brokers when they’re giving information to clients, what you’ve got to avoid is using it to come from a place of fear and making rash decisions or going into product trends because you’re basing it on an at-the-moment prediction of where maybe, possibly, rates could go.”
Case in point: the decision by scores of borrowers to choose a variable-rate mortgage during the COVID-19 pandemic, when the Bank of Canada slashed its overnight rate to rock-bottom lows and helped spur a housing market boom.
CMHC’s latest outlook predicts a rebound in home prices and sales, driven by lower mortgage rates and new lending rules. However, affordability challenges persist, and housing starts are expected to slow through 2027. https://t.co/vkTliblsMu
— Canadian Mortgage Professional Magazine (@CMPmagazine) February 5, 2025
Bank governor Tiff Macklem assured Canadians that borrowing costs would “remain low for a very long time,” only to embark on a rapid series of rate hikes in 2022 and 2023 to combat a huge inflationary spike – dramatically driving up the cost of a variable-rate mortgage.
“Look at what happened with variable interest rates during the pandemic and how many clients were adversely affected by it because they weren’t in the right product,” Hinojosa pointed out. “They were following the trend and the narrative that rates weren’t going to change for a very long time.
“That was so hyper-played up that people fell into it thinking that was the truth without understanding economics as a whole and the long-term trends. So don’t use this information to advise clients. Be intentional about your product offering and think how it pertains to you and your risk level, and what you’re comfortable with moving forward.”
That should be the number one consideration for brokers toward their clients, according to Hinojosa: offering a stress-free financial plan tailored to the borrower’s own individual needs rather than the prevailing current market trends.
Risk tolerance, economic unpredictability should factor into decision
A good way to approach the fixed-vs-variable question, she said, is telling clients to consider over the next 24 to 48 hours how they’d feel if rates start to slide or begin to rise.
That can help them map out the best path forward in a period of severe unpredictability with little clarity at present on whether tariffs will come into force next month or not.
“There are almost three different scenarios that can happen if and when tariffs are imposed, and depending on how long they’re imposed for,” she pointed out. “It could have an impact on the Bank of Canada having to do emergency measures. It could cause inflation to spike and at that point, maybe the Bank can hold steady or possibly increase the rate.
“We don’t know what the future holds. What matters is how [the client] would feel if that happened – and then go on that emotional feeling.”
Many borrowers still choosing fixed rates for peace of mind
Despite the prospect of further central bank rate cuts in 2025, particularly if tariffs begin to weigh against the economy, Hinojosa said clients often return to her after that 48-hour period and decide they want the peace of mind of a fixed rate that will remain the same over the next five years no matter how the economy evolves.
“The response I’m getting back is, ‘I thought about it – I’m quite happy with the payments at the fixed rate,’” she said. “‘I’m going to sleep at night. I don’t care if the rates go down, because I know I’m going to be more upset if the opposite happens. I’d rather know that I’m protected, and I’m OK with that choice.’”
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