Choosing a Variable Rate Mortgage in 2025: Is It the Right Move for You?
Happy New Year 2025! — It’s a new year and we are seeing new predictions on mortgage rates and if they will continue to go down over the next 12 months. Variable-rate mortgages, tied to the Bank of Canada’s policy decisions, are sparking interest among homebuyers and those renewing their mortgages this year. With rates already down and further reductions expected, it may be time to consider whether a variable rate is your ticket to savings on your mortgage this year!
Why Consider a Variable Rate in 2025?
After enduring a financial rollercoaster that included rate hikes that have caused a lot of hardship for many Canadian homeowners, people are once again warming up to variable-rate mortgages. Here’s why they’re worth a second look in 2025:
Potential Long-Term Savings: Historically, variable rates tend to save homeowners more over the life of a mortgage. If prime rates continue to drop as predicted, you could be laughing all the way to the bank (or at least to a slightly smaller mortgage payment or amortization).
Immediate Budget Relief: Choose an adjustable-payment variable mortgage, and each Bank of Canada rate drop means lower monthly payments. Opt for a fixed-payment variable mortgage, and although your monthly payment does not change, the portion going toward principal (rather than interest) is adjusted to your benefit, which will help you pay down your mortgage faster. Either way, you win.
Flexibility to Switch: Variable-rate mortgages offer the freedom to lock into a fixed rate without penalties if your financial situation changes. Plus, breaking a variable-rate mortgage can cost a lot less than breaking a fixed rate mortgage.
Market Trends Are on Your Side: Fixed rates are slightly lower right now, but that gap is narrowing. Projections suggest the prime rate could drop another 0.75% or more by the end of 2025. If this happens, variable rates could once again outshine fixed rates like they have historically.
Is a Variable Rate Right for You?
Variable rates aren’t for everyone, so here are a few things to consider:
Risk Tolerance: If the thought of fluctuating rates gives you sleepless nights, a fixed rate might offer some peace of mind.
Budget Stability: Fixed rates provide predictable payments, making them ideal for first-time buyers or anyone who prefers a little less financial instability.
Market Conditions: While the outlook for variable rates is positive, unexpected economic shifts could cause rates to rise temporarily once again. If only we had a crystal ball!
The Bottom Line
Choosing between a fixed and variable rate mortgage depends on your financial goals and risk tolerance. If you’re comfortable with a bit of uncertainty, a variable rate mortgage can offer potential savings and flexibility. But if stability is your thing, a fixed rate might still be the way to go. Either way, talking to a mortgage expert will help you make the choice that’s right for you.