There has been a lot of talk since the election of Donald Trump on whether you should go with a fixed or a variable-rate mortgage in 2025. In this article, I’ll discuss why the US election affects Canadian mortgages and whether a fixed or variable-rate mortgage in 2025 is the right answer.
The US election and Trump’s promise of tariffs on other countries have put upward pressure on bond markets. Fixed rates reflect bond markets, so if bonds go up for a sustained period, then so do fixed rates.
The Bank of Canada is now looking to ease the economic strain on Canadians due to the results of this election. This means that they will likely lower their key interest rate. When the key interest rate lowers, so does Prime, usually by the same amount.
The Prime rate is the rate that goes up and down when the Bank of Canada changes their rate. Prime is what the lenders use in reference to a variable rate mortgage and a home equity line of credit.
I’m going to show two charts below that compare fixed VS Prime with a fixed rate for 5 years of 4.3% VS Prime 5.95% minus 0.85%. As a broker, I want to mention that both would be good rates and very much depend on whether someone goes with a 3-year fixed, 5-year fixed or variable, 25-year amortization or 30-year.
For this example, I put a 5-year term and 25-year amortization, 4.3% fixed and Prime minus 0.85% on a 25-year amortization.
I did this because you are more likely to get the best rates on a 25-year amortization. I’ve put Prime going down 2% over the next 2 years and then staying the same.
[add in charts here]If we’re looking at this chart, it looks like a variable rate mortgage should be the better bet based on those numbers. But, I want to point out that the 2% Bank of Canada total rate cut over the next two years isn’t guaranteed as it will depend on the policies and negotiations with the US along with other factors that affect inflation.
This is a very technical blog topic – I want to make sure that everyone understands the differences and how each mortgage situation is different. Once I know your situation, down payment, income, credit, debts, etc, I can provide the fixed rate as well as the variable rate you qualify for.
There are risks to go with a variable mortgage and it’s something to consider and prepare for. If Prime doesn’t go down as much as we think/hope it will be due to outside factors, you won’t be saving as much as I mentioned above and may even pay more.
Prime will likely go down, but it’s not a guarantee and something you consider through risk vs reward.
On that note, fixed-rate mortgages are the lower-risk option. At this point, a lot of clients are still taking this point.
When deciding what to do, it is wholly dependent on your risk level and whether or not the payments are comfortable and possible to be made. I see a lot of people choosing a fixed-rate mortgage right now, but I do believe that may swing in the other direction soon.
The other strategy people are using is taking a variable rate mortgage with the idea that they will lock into a fixed rate in 2025 or 2026 once rates have stabilized.
Let’s say you wait one year from when you got your mortgage, you could lock into a 4 or 5-year fixed. Wait two years, you could lock into a 3 year or longer fixed.
Some banks have different policies, but the safest to say is that if taking a variable to lock in later, you would be locking into an equal or greater term at the time you lock in.
If you’re ready to decide between a fixed or variable-rate mortgage in 2025, reach out to me today. We’ll go through your situation and I’ll show you what rate options I can get for you. Together, let’s discuss the options and decide on the right one for you. Give me a call at 250-826-3111, apply on my website or contact me through my online contact form to start the process today.
Let’s get your application off the ground.
