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Have Variable Mortgage Rates Peaked in Canada?
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Variable mortgage rates have been on a wild ride over the past couple of years — climbing steadily, shaking up monthly budgets, and pushing Canadian borrowers to rethink their home financing plans. If you’ve been riding this wave (or watching from the sidelines), you’re probably wondering: Have variable rates finally peaked? Or are more rate hikes lurking around the corner?
In this article, we’ll break down what’s happening with variable mortgage rates in Canada, what influences them, and whether now is the time to lock in, wait it out, or make a switch.
Understanding What Drives Variable Mortgage Rates
Variable mortgage rates don’t just move at random. They’re directly influenced by the Bank of Canada’s policy interest rate, which in turn is shaped by inflation, economic growth, and global financial conditions.
Here’s the basic chain reaction:
- The Bank of Canada (BoC) sets its overnight rate.
- Banks adjust their prime rate, usually adding a premium of around 2.20% to the BoC rate.
- Your variable mortgage rate is tied to this prime rate.
So when inflation is high and the BoC wants to cool down spending, it hikes the policy rate — and your mortgage payments go up. When inflation is under control and the economy needs a boost, it cuts rates — and your payments go down.
[Placeholder: Infographic showing relationship between BoC rate → bank prime → variable mortgage]
A Quick Look Back: Variable Rate Trends Over the Years
To figure out if rates have peaked, it helps to look at how they’ve behaved in the past.
Back in the early 1980s, Canada saw sky-high interest rates — with variable rates hitting double digits. Thankfully, those days are long gone. From around 2009 until 2021, we saw historically low rates, often under 2% for variable mortgages.
But then came inflation. Between 2022 and 2023, the BoC responded to surging prices with a series of aggressive rate hikes — pushing its policy rate from 0.25% to 5.00% in less than two years.
As of mid-2024, most major lenders have their prime rate sitting around 7.20%, making typical variable mortgage rates hover between 6.00% and 6.50%.
So… have we peaked?
What the Experts Are Saying in 2024
Economists and mortgage analysts are divided — but many are starting to say that yes, variable rates may have already peaked.
Optimistic Outlook
Some experts believe the BoC’s rate hikes have done their job. Inflation is finally cooling, unemployment is ticking up, and consumer spending is slowing. That’s a sign the central bank could start easing up.
CIBC’s Andrew Grantham projects that rate cuts could begin by Q2 2024, especially if unemployment rises beyond 6% and inflation continues to fall below 3%.
Cautious Camp
Others are more hesitant. They point to persistent inflation in the US and the possibility that the BoC might wait to see more evidence before cutting rates.
BMO’s Douglas Porter has predicted the Bank will likely hold rates steady deep into 2024, waiting for clear signs that core inflation is under control.
What This Means If You Have a Variable Rate Mortgage
If you’re already in a variable-rate mortgage, you’ve probably seen your payments rise — either directly (with an adjustable-rate mortgage) or indirectly (with static payments and more of your payment going toward interest).
So what now?
- If rates truly have peaked, you may want to stay put. When cuts begin, your payments could decrease.
- If you’re feeling squeezed, some lenders offer options like switching to a fixed rate or blending and extending. But weigh the penalties and long-term impacts before making a move.
Tip: If you’re nearing your trigger rate (where your payments no longer cover interest), it’s worth speaking to your lender now — not later.
Thinking of Choosing a Variable Rate in 2024?
If you’re house hunting now and considering a variable rate mortgage, timing is everything.
Variable rates are currently higher than fixed rates — so in the short term, you’ll pay more. But if rate cuts happen later this year, you’ll benefit sooner than someone locked into a fixed rate.
Here’s what to think about:
- Are you financially comfortable with short-term rate hikes?
- Do you plan to break your mortgage early? (Variable usually means lower penalties.)
- Would you benefit from more flexibility if rates start falling?
📉 Fixed vs Variable Mortgage Payments (5-Year Term)
Here’s how monthly mortgage payments could differ depending on interest rate trends over a 5-year term for a $500,000 mortgage (25-year amortization):
| Scenario | 5-Year Fixed (4.99%) | 5-Year Variable (Starting at 5.50%) |
|---|---|---|
| 🔒 Stable Rates | $2,909 | $3,044 |
| 📈 Rising Rates (to 6.75%) | $2,909 | $3,367 (by Year 5) |
| 📉 Falling Rates (to 4.25%) | $2,909 | $2,663 (by Year 5) |
💡 Tip: Variable rates offer flexibility and lower potential cost in a falling-rate market — but fixed rates bring payment stability.
Alternatives If You’re Not Ready to Bet on Variable Rates
Not everyone’s cut out for the ride that comes with a variable-rate mortgage. If you want predictability, here are some alternatives:
- Fixed-rate mortgage: Lock in your rate for 1, 3, or 5 years. You’ll have consistent payments even if interest rates climb.
- Adjustable-rate mortgage (ARM): Different from static variable — your payments rise and fall with rates.
- Hybrid mortgage: A mix of fixed and variable. Good if you’re unsure which way rates will go.
Tip: If peace of mind matters more than short-term savings, a short-term fixed (like 1 or 2 years) might be a safer bet in this volatile market.
FAQs: Variable Rates in Canada
Will the Bank of Canada lower rates in 2024?
Many economists expect a gradual rate cut cycle to begin by mid to late 2024, depending on inflation trends and employment data.
Is a variable rate better than a fixed rate in 2024?
Right now, fixed rates offer more short-term savings, but variable rates may win over a 5-year term if rates drop. It depends on how soon cuts happen.
Should I lock in my variable mortgage now?
Only if the monthly payment stress is too much or you expect rates to stay high longer than economists predict. Otherwise, holding out might pay off.
Final Thoughts: Are We Finally at the Top?
While no one can predict the future with absolute certainty, there are signs that Canada’s variable mortgage rates may have already hit their peak. With inflation stabilizing and the economy slowing, the next major move could be down — not up.
That said, whether you’re already in a variable-rate mortgage or considering one, the key is to stay flexible and informed. The mortgage landscape is shifting fast, and your best move is one that matches your budget, risk tolerance, and long-term plans.
