Should You Choose Variable or Fixed in 2025?

 

Should You Choose a Variable Rate in 2025?

With prime rates trending downward, many home buyers and homeowners are wondering: Is now the time to choose a variable rate over a fixed rate?

Let’s break it down and weigh the potential savings versus the risks to help you make the best decision for your mortgage needs.

 

Variable vs. Fixed: What’s the Right Move?

Over the past few years, we’ve seen some of the most rapid rate increases in over two decades. But now, with the Bank of Canada shifting policy and the potential impact of a trade war, rates could be heading even lower.

That leaves mortgage clients considering two key mindsets:

• FOMO (Fear of Missing Out): Could a variable rate save you money as rates decline over the next few years?

• JOMO (Joy of Missing Out): Is locking into a great fixed rate now the best way to ensure stability and peace of mind?

Let’s explore how a variable rate could impact your mortgage.

"Much of what’s happening stems from economic uncertainty. Remember, bad economic news usually = Good news for mortgage rates as yields tend to decrease on bad news." - Bruno Valko, Vice President, RMG National Sales

Why Consider a Variable Rate Now?

Despite the sharp rate hikes from 2022 to 2024, variable rates are back in the conversation as an attractive option. Here’s why:

• Immediate Savings: If you opt for an adjustable-rate mortgage (ARM), your payments will decrease every time the Bank of Canada lowers rates.

• Faster Mortgage Payoff: With a fixed-payment variable mortgage, as rates drop, more of your payment goes toward principal, helping you pay off your mortgage sooner.

• Historically Lower Costs: Variable rates have historically saved homeowners more money over the life of a mortgage compared to fixed rates.

• Flexibility: You can lock into a fixed rate anytime, typically without penalty, and if you break your mortgage, variable rate penalties are usually lower than fixed-rate penalties.

How Low Could Variable Rates Go?

As of early 2025, bank prime rates have already dropped by 2.0% from their peak of 7.20%. If economic conditions remain volatile due to trade policies, we could see another 3 to 6 rate cuts, potentially bringing the Bank of Canada’s policy rate to 2.25% by the end of the year.

That means variable rates, which are currently higher than fixed rates, could shift back to their traditional position—lower than 5-year fixed rates.

However, with economic uncertainty, it’s crucial to consider your risk tolerance. If rates don’t decline as expected or if inflation resurfaces, variable rates could be less favourable.

 

Fixed Rates: A Safe Bet for Many

While a variable rate has strong potential for savings, it’s not the right fit for everyone. Here’s why some homeowners may prefer to lock in a fixed rate:

• Predictability: No matter what happens to rates, your payments stay the same.

• Peace of Mind: No worries about economic changes or unexpected interest rate hikes.

• Competitive Rates: Fixed rates have already come down from last year’s highs, making them an appealing choice for those who prefer financial stability. 

   

   

  
  
  

                                    Finding the Best Fit for You

  If you’re not sure whether to go with variable or fixed, there are other strategies to consider:

• Short-Term Fixed Rates: A 3-year fixed rate could help bridge the gap if you think rates will be lower in a few years. *** and I have some awesome specials here at the moment! ***

• Open Variable Rates: If you anticipate making significant mortgage changes soon (selling, refinancing, or paying off a lump sum), an open variable mortgage provides the flexibility you need.

At Brokers for Life, we’re here to guide you through your options and help you make an informed decision. With access to multiple lenders and a focus on finding the best mortgage solution for your unique needs, we ensure you get the right product—at the best possible rate.

 

              Have questions? Let’s chat and find the right mortgage for you in 2025!