Fixed rate or variable rate: What to choose in 2024? – nesto.ca Fixed rate or variable rate: What to choose in 2024?

Are you wondering about the evolution of interest rates in 2024? You don’t know whether you should opt for a fixed or variable rate for your mortgage loan? Here we answer some of the questions we get asked most often in the mortgage industry with Chase Belair, Principal Broker and Co-Founder of nesto.

Read on and allow us to reassure you a little!

The main points

• nesto offers a lock-in period of 150 days. Lock in your low rate for 30 more days with us.
• Each 0.25% (25 basis points) increase in interest rates adds approximately $14 per month to your payment for every $100,000 of mortgage balance.
• Forecasts indicate we could see a rate cut in 2024, but borrowers should not expect a return to pre-pandemic low rates.

Interview

Q: Is it advantageous to renew your loan early and switch to a fixed rate?

R : Given the difference between a fixed rate and a variable rate, there is less added value in renewing your loan at a fixed rate today than at a historically low variable rate. Unless the main goal is to manage the stress of making payments during this difficult time. Every borrower has a different risk tolerance. Where there is a substantial difference between the lowest variable rate and the lowest fixed rate, the variable rate may be preferred in most cases. As the gap narrows, with the most tangible benefit being reduced interest paid, interest savings are harder to identify and impossible to guarantee. The best argument in favor of an adjustable rate mortgage is the prepayment penalty, which applies when you terminate the mortgage instead of extending it to its term. In fact, the penalty for a variable rate mortgage is most often limited to interest charges over three months, while a fixed rate mortgage can result in considerable interest rate differential charges. Ultimately, it comes down to personal choice.

Q: nesto offers a 150 day lock-in period. Is now a good time to lock in a fixed rate?

R : 150 days is currently the best rate lock period in Canada for fixed and variable rates. As mentioned above, the decision to go with a fixed rate depends on your current mortgage, if you have one, and your risk tolerance. Since the height of its popularity, although it is less popular today, the variable rate remains a very good option in many situations.

Q: If the key interest rate increases again by 1.0%, what will be the impact on variable rate payments?

R : Your payment will increase by approximately $56/month for every 100 basis points (1.0%) increase in the prime rate over a 25-year amortization period for every $100,000 of mortgage balance.

That’s about $14/month per quarter percentage increase (25 basis points) for every $100,000 balance.

Q: How much will rates rise in 2024? Will rates stop rising soon?

R : As economists do not agree on the forecast for 2024 and that the Board of Governors of the Bank of Canada is divided on whether the policy rate can bring inflation back to the 2% target, it is impossible to predict with certainty the direction interest rates will take in 2024. Recent data suggest that interest rates could start to fall around April 2024. Not all mortgage lenders, however, are as quick as nesto to react to the downward trend in interest rates.

Q: Do rising interest rates impact my borrowing capacity? if yes, how?

R : First of all, the budget is crucial; Borrowers need to be diligent and know what they can and cannot afford. Second, the stress test required to qualify borrowers is now different depending on whether they opt for a fixed or variable rate.

Thus, fixed mortgages are tested at nesto’s lowest assured rate, namely[fixed_5}+2%andvariablemortgagesat[fixed_5}+2%etleshypothèquesvariablesà +2%. In other words, it is currently, but not always, easier to obtain more money by opting for a fixed rate mortgage. Needless to say, in these difficult times, budgeting is essential for all households.

Q: How will interest rates impact debt levels and consumer spending?

R : On average, a 0.25% increase represents approximately $14 per $100,000 mortgage. For a $500,000 loan, a 1% increase can mean up to $280 per month in payment increases. Factoring in other debts affected by the lender’s prime rate, the impact will vary from borrower to borrower, but will ultimately reduce cash flow in most areas of spending.

Q: What are your forecasts for interest rate decisions in 2024? How will this affect the market?

R : Borrowers who wait for a drop in mortgage rates to make their decision should not expect a return to the very low pre-pandemic rates. Although it is possible that rates will fall in 2024, there is no indication that rates will be below 4% for the foreseeable future.

Q: What is the best advice to give to a homeowner who is currently worried about the impact and inability to pay their mortgage?

R : Prepare your budget and seek advice from a qualified mortgage or financial expert. Rates are an important part of the total strategy, but the strategy itself is your best friend in ensuring that you and your family remain well-positioned to withstand higher interest rates over the long term.

Q: What advice would you give to a “pandemic buyer”?

Who got a variable rate mortgage when rates were at historic lows and now faces the crisis?

R : If you currently have an adjustable rate mortgage, you have chosen this strategy for good reason. The most common reason is mortgage freedom and flexibility with a small prepayment penalty, should you need to cancel it. Regardless of the level of the prime rate today or tomorrow, this reason remains an important factor in a buyer’s decision process today. Opting for a fixed rate mortgage today would limit your flexibility and result in a new fixed cost of borrowing at a much higher rate than when you first embarked on this journey.

Q: What advice would you give to a new buyer right now?

R : I would tell them to know the limits of their finances and understand their long-term goals. They should not try to get ahead of the market, but reassure themselves that they may still be able to afford what they want despite the increase in interest rates. In general, depending on income and down payment, each 100 basis point (1%) increase in the prime rate results in a decrease of 5% to 15% in the eligible amount. However, new data indicates that house prices could fall more than the allowable amount in the short to medium term. This means the dream of homeownership may still be within reach. Prepare to buy over the next six months as housing supply is limited and prices will eventually rise.

If you’re ready to get your rate low and block for 150 daysspeak to a nesto mortgage expert today!