Optimal Mortgage Rate Options for Quebec Borrowers: Fixed vs. Variable Rates, Expert Analysis and Recommendations

According to data from Royal LePage, 28% of residential mortgage loan holders renew their contract during the year in Quebec. And among them, 75% chose a fixed rate in their last contract.

See the report on this topic in the video.

In other words, a large number of Quebec borrowers will have to accept higher mortgage payments in the coming months, regardless of the path they choose.

For what? This is a direct result of the Bank of Canada raising key rates to combat inflation. In 2020, the top rate was 0.25%. In April 2024, the rate is now 5%.

So the question arises which level is more beneficial in this particular context.

“This is probably the question we get most often at the moment. […] in fact, the answer is “it depends”, said the mortgage broker at Multi-Prêts Hypothèques, Méline Descarreaux.

Rates as of April 16, 2024
5 year fixed: 4.89%
Variable: 6.25%
Source: Multi-Prêts Hypothèques

Fixed rate stability

As a general rule, variable rates are lower than fixed rates, “but we’re getting the complete opposite right now,” explained Ms. Descarreaux.

With a fixed rate of 4.89% over five compared to a variable rate of 6.25%, most customers tend to favor the first option.

A number of lenders, curious to see what the future will offer them, are moving towards a shorter, three-year contract, which comes with a small increase to 4.99% .

These lenders make this choice by “anticipating that rates may fall again in the coming years, hoping that the fight against inflation will eventually be successful over,” explained economics professor at the University of Sherbrooke, Mario Fortin.

The advantage, as Mr. Fortin explains, is that the fixed rate, regardless of the period chosen, offers a certain “proof” to the borrower. The stability of payments over a fixed period of time allows him to create a budget that is protected from the differences of the Bank of Canada.

The fixed rate also protects borrowers from constant increases in the prime rate over the past two years, until the end of their contract. Obviously.

Variable rate, risk management

In a world where the variable rate is significantly higher than the fixed rate, why would a lender take such a risk? There are a few reasons.

“There are still people who are interested in going with a variable rate mortgage, because they are confident that the rates will fall,” said Ms. Descarreaux, simply.

In addition, it is possible to “fix” your grade during the term.

“If we have the budget to do it today, if we have the finances and we’re comfortable […] “It could be a form of consideration,” she continues.

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Even though the variable rate seems particularly risky in the current economic context, this option is historically beneficial in the long run. As mentioned above, the variable rate is generally lower.

So “someone who always renews at the variable rate should expect to spend less than the five-year (rate),” Mr. Fortin said.

However, this borrower must expect “fluctuations in their payments”

Through? Here’s how to see it, according to the professor: “Is my financial ability good? Can I support double mortgage payments in my budget?

If the borrower has strong enough finances to accept this bet, he is “playing it”. But if this same borrower does not have discretionary margin, “at that time, he would be playing with fire”.

Customers, should we wait?

It’s not just the rates that are high. So are home prices, and the forecast doesn’t seem to be improving for buyers.

According to the latest analyzes from Royal LePagethe real estate market is “set for a new period of price growth across the country and in the province. “

A fall in interest rates will not help the cause of new buyers, if they decide to invest heavily and at the same time in the real estate market, the report shows.

That is why Ms. Descarreaux insists that the waiting period may be over.

“If you are ready to buy, if you have a crush on a house and if you find the property that suits you, I think “go ahead”.