Over half of Canadian mortgages are set to renew before the end of 2026, and with the Bank of Canada decreasing its key interest rate to 4.75% on June 5th, homeowners are faced with the decision of whether to choose a fixed or variable rate upon renewal. Being aware of available options and preparing for changes is key to navigating the current mortgage market.

A significant number of homeowners will need to renegotiate their mortgages within the next few years, particularly those who have variable-rate mortgages or secured loans during the period of historically low rates in 2021. As the current mortgage landscape sees variable rates surpassing fixed rates, it is important for homeowners to consider their options carefully when it comes to their upcoming mortgage renewals.

The current average five-year variable interest rate sits at around 6.7% +/-, while fixed rates typically hover around 5.6% +/-. Variable rates are influenced by factors such as the Bank of Canada's key overnight lending rate, which recently saw a cut for the first time in four years. Despite expectations for further rate cuts by 2024, the era of historically low interest rates is likely coming to an end.

Variable-rate mortgages are subject to fluctuations and can result in changes to mortgage payments when the prime rate rises or falls. However, options with fixed-payment structures can provide stability by keeping monthly payments consistent, even if rates increase. 

Amidst the current uncertainty, more borrowers are opting for fixed-rate mortgages with shorter terms such as 1,2, or 3 years. This allows borrowers to lock in and have a predictable monthly payment without committing long-term. 

When deciding between fixed and variable rates, borrowers should consider their risk tolerance and personal circumstances. Those going through transitions like career changes or separations may prefer the stability of a fixed-rate mortgage. Strategic options like shorter-term fixed-rate mortgages, hybrid-rate mortgages, and convertible mortgages can provide flexibility and benefits depending on the borrower's needs.

Seeking advice from a mortgage broker can help individuals navigate the best mortgage product for their unique situation. Anticipating interest rate changes and adjusting financial strategies accordingly can have a significant impact on long-term mortgage management.

Do you have questions related to real estate or borrowing? Please reach out as I can assist with both aspects and help you navigate through the entire real estate journey.