Canadian homebuyers now have the option of getting a variable mortgage rate below one per cent for the first time ever, according to a rate comparison website.
Ratehub.ca said the best five-year variable mortgage ranked on its website is now 0.98 per cent.
The rate is offered by Ratehub’s in-house mortgage brokerage CanWise Financial.
The best five-year fixed rate is 1.74 per cent, according to the site.
But that doesn’t necessarily mean going with a variable rate is the best option for all homebuyers.
“If you’re the type of person that likes certainty and would get a lot of utility from knowing exactly what your mortgage payment will be over the next five years so you don’t have to worry about mortgage rates and you can budget precisely, then that type of person should always take a fixed rate no matter what the savings are from the variable,” James Laird, co-founder of Ratehub.ca and CanWise Financial president, said in a phone interview.
“If you’re comfortable with a little more risk, it’s not going to cause you anxiety that your mortgage rate can, and probably will, change at some point during the five-year term of your mortgage – it’s still likely the variable will save you money. Nine times out of 10 the variable rate is the cheaper option,” he said.
Mortgage rates plummeted as the Bank of Canada lowered its benchmark rate to record lows to help cushion the economy from the shock of the COVID-19 pandemic.
That subsequently kicked off a flurry of activity in the housing market, pushing home prices to new heights.
Laird said these historically low mortgage rates might not be here long-term as the Canadian economy reopens and growth kicks into high gear.
“Good news is actually bad news for rates. The stronger our recovery, the better the jobless numbers, the stronger the economic growth, the more likely the Bank of Canada might raise rates ahead of their current ‘second half of 2022’ projection. So at some point, prime [rates] will move up,” he said.
Regardless of how low mortgage rates are though, they don’t help a homebuyer qualify for a mortgage.
As of June 1, the stress tests for both uninsured and insured borrowers were tightened, meaning homebuyers have to prove they can handle their mortgage payments at a rate of at least 5.25 per cent.