By Dave Oliver, Mortgage Broker with The Mortgage Group – 15 Years’ Experience
When clients ask me about mortgage rates, the first thing I explain is that variable and fixed rates are driven by completely different forces—and understanding this can save you thousands over time.
What Affects Variable Rates?
Variable-rate mortgages and home equity lines of credit (HELOCs) are directly tied to the prime rate set by lenders, which in turn follows the policy rate set by the Bank of Canada.
The Bank of Canada adjusts its rate primarily to control inflation. When inflation rises, rates typically increase to slow spending. When the economy weakens, rates may drop to stimulate borrowing and growth. This means variable rates can fluctuate multiple times per year depending on economic conditions.
What Affects Fixed Rates?
Fixed mortgage rates are not set by the Bank of Canada. Instead, they are influenced by bond markets, particularly Government of Canada bond yields.
Lenders use these yields to determine pricing for fixed terms (like 3- or 5-year mortgages). If bond yields rise—often due to expectations of inflation or economic growth—fixed rates follow. If yields fall, fixed rates typically decrease.
Which Option Is Best?
It really comes down to risk tolerance and timeline:
- Variable Rate Mortgage
- Best for borrowers comfortable with some fluctuation
- Ideal if you believe rates may stabilize or decline
- Often suited for shorter timelines or those who may sell/refinance within a few years
- Historically, variable has saved borrowers money over the long term—but not always in the short term
- Fixed Rate Mortgage
- Best for borrowers who value certainty and stability
- Ideal for tight budgets or long-term planning
- Protects against rising rates
- Peace of mind comes at the cost of less flexibility
Final Thoughts
There’s no one-size-fits-all answer. The right choice depends on your financial comfort level, future plans, and how much risk you’re willing to take. My role is to help you weigh those factors and choose the strategy that works best for you—not just today, but over the life of your mortgage
Call Dave at 306 227 7367 with any questions.