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How Can Fluctuating Interest Rates Affect My Mortgage?

General Angela Calla 24 Feb

There’s a lot you need to know when navigating the world of mortgages. And, if you’re not careful, it’s quite easy to get tripped up in the lingo, the procedures, and the payments. (Not to mention the penalties.)

As is the case with most things in life, when it comes to locking in your mortgage interest rates, timing is everything.

How Can Fluctuating Interest Rates Affect My Mortgage?

Unless you’ve been hiding under a rock throughout the COVID pandemic (no judgement here), you’ve likely noticed a lot of attention being paid to interest rates over the past 12 months.

Back in mid-July, Bank of Canada Governor Tiff Macklem held a press conference in which he pledged that the Bank’s overnight lending rate of 0.25% would hold until the country’s inflation rate returns to its 2% target and achieves sustainably. That ‘hold’ could end up being years long.

As a result, homebuyers are enjoying access to historically-low interest rates that can easily translate into savings over hundreds of dollars per mortgage payment and thousands, if not tens of thousands, over longer fixed-terms.

So, what does all this mortgage interest rate movement mean for you? Well, that depends.

Fixed Rate Mortgages

Historically, fixed mortgage interest rates have always tended to drop slowly but increase quickly. Traditionally, when fixed rates went up, it was normally a quick occurrence and one that came without much warning to the everyday borrower, as lenders set rates based upon the commercial bond market. Looking back just to 24 months ago, client mortgages in early 2019 were getting locked in five-year fixed rates at 3.79% — and those were considered competitive rates.

In the last year, however, since COVID and the resulting economic fallout (see: precipitous drop in interest rates), home buyers have found fixed mortgage interest rates are now hovering around 2% on the same five-year fixed basis.

On a $500,000 mortgage, the difference between a five-year fixed at 3.79% and 2% would — as it looks — cut the interest portion of monthly payments nearly in half. (In this example, the total difference between these two rates in interest payments on a mortgage over a five-year term is just shy of $45,000.)

In other words, fixating on getting the right rate for your fixed-rate mortgage can result in a massive amount of savings over the next half-decade.

Variable Rate Mortgages 

Unlike fixed-rate mortgages, variable-rate mortgages move up and down according to the Bank of Canada rate. Variable-rate mortgages (also known as adjustable-rate mortgages) are quoted relative to a lender’s prime lending rate, which takes guidance from the Bank of Canada rate.

If you have a fixed-rate mortgage, you do not have to worry about the fluctuations until your term ends and you need to re-sign for another term. If you have a variable-rate mortgage, however, you should expect some ups and downs during your mortgage term — especially in turbulent economic times.

Given how low fixed-rate mortgage rates have dropped over the past 12 months, there isn’t much benefit to accepting the risk a variable-rate product carries with it. Which is to say, if you can lock in for five-years at the rate of inflation (or lower!), the security of doing so far outweighs the possible upside a variable-rate could offer you by going a few tenths of a point lower.

As such, we recommend fixed mortgage rate solutions throughout the current COVID climate.

Read the full article on Toronto Storeys


Angela Calla is a 16-year award-winning woman of influence and mortgage expert. Alongside her team, Angela passionately assists mortgage holders in acquiring the best possible mortgage. She educates and empowers individuals on “The Mortgage Show”, and is the best selling author of The Mortgage Code where all proceeds are donated to the YWCA.

Angela is a magazine contributor, speaker, and recently collaborated to publish her third book, Pursuit:365. In August of 2020, Angela surpassed $1 Billion dollars in funded personal mortgage volume at the young age of 37 and was recently awarded the 2020 Business Leader of the Year Award. Angela leads by example with passion and conviction, known as an industry expert and go-to source for media and publishers across the Country.

For media interviews, speaking inquiries, or personal mortgage assistance, please contact Angela at hello@countoncalla.ca or 604-802-3983.