As the Bank of Canada on Wednesday lowered its overnight benchmark by 25 basis points from 2.75 per cent to 2.5 per cent, experts say homeowners looking to renew their mortgages have a chance to save.
Commercial lenders, like private banks, base their rates on the key policy rate set by the central bank. According to the Bank of Canada’s own research, 60 per cent of all Canadian mortgages will be up for renewal in 2025 and 2026.
Variable-rate mortgages are determined by the central bank’s interest rates, while fixed-rate mortgages are determined by activity in the bond market.
“Renewing a mortgage got a little easier on Wednesday, but only if you’re sniffing out a variable rate,” said Clay Jarvis, mortgage expert at NerdWallet Canada.
“Variables have dipped by up to 30 basis points at some lenders, and are well below four per cent at some brokerages and online lenders.”
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Those looking to wait a little longer to see if the bank cuts rates further should lock down a rate sooner rather than later, said Penelope Graham, mortgage expert at Ratehub.ca.
“If you’re someone who is strongly considering getting a variable mortgage rate and you’re wondering if you should wait until perhaps October or December (for the next interest rate cut), it’s actually a great idea to get a rate hold now for up to 120 days,” she said.
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“Even if we do get a couple more rate cuts, you will still enjoy whatever those lowest rates now are.”
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Jarvis said the Bank of Canada’s rate cut could make variable rates very tempting, but there are risks for borrowers to consider.
“Because of the affordability component, variables can look especially tasty. But it’s really important to remember that once the BoC is done cutting rates, they’ll eventually have to start increasing them,” he said.
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“If you’re not comfortable with that level of risk, consider a fixed rate. Fixed rates aren’t as flexible, but they’re predictable and widely available for under four per cent.”
Whether you’re planning to renew with a fixed- or variable-rate mortgage should depend on what your housing needs are, said Leah Zlatkin, licensed mortgage broker and LowestRates.ca expert.
If you’re planning to move in a few years, a variable mortgage might make sense since it typically has a lower penalty if you want to break it.
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“That’s going to offer you more flexibility should you need to break it. If everything’s going to remain consistent, and you’re good to go for the next three to five years, you can absolutely lock into a fixed,” she said.
Zlatkin recommends you start shopping for a new mortgage at least four months ahead of your renewal date.
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“If you’re sitting in the five per cent range right now, it might be a good time to break that mortgage and look for a lower rate,” she said, adding that the closer to the renewal date you break your mortgage, the lower the penalty is likely to be.
What ends up costing many Canadians when renewal comes around is loyalty to their bank or lender, Graham said.
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“If you are renewing with your existing lender, they send you that renewal letter and it says, ‘Hey, here’s your new renewal rate, just sign on the dotted line quick and easy,’” she said.
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A recent survey said 69 per cent of Canadians end up staying with their current lender when renewing their mortgage. Another survey said three in four Canadians stick with the ‘Big Five’ banks – RBC, TD, BMO, CIBC and Scotiabank.
“It’s usually not the most competitive rate available because lenders tend to reserve those for brand new clients.”
According to Ratehub.ca analysis, Canadians end up paying $155 a month more on average if they stick with their current lender. Over a five-year period, that’s a difference of around $9,300.
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In November last year, Canada’s banking regulator made it easier to switch lenders by removing the stress test requirement for a mortgage switch where the principal amount and amortization period haven’t changed.
“If you’re coming up for renewal, it’s in your best interest to at least explore your other options with other lenders,” Graham said.
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