A 1-Year Fixed Strategy

1-year-or-variable-mortgage The odds are fair that prime rate is heading 25 basis points higher in one of the next two Bank of Canada meetings. (See this Reuters’ poll)

After that increase, many analysts foresee a pause of at least six months before rates resume higher. Rates are then expected to climb modestly until prime rate gets closer to its 4.65% ten-year average.

This scenario has some people thinking that a variable rate is just what the doctor ordered. If you happen to be in that boat, there’s an even better strategy to consider.

If you do a little digging you’ll find various brokers offering 1-year fixed rates near 2.25%.  These offers are a fantastic alternative to variables, for a few simple reasons:

  1. If the BoC hikes rates 1/4% in the next few months, your 2.25% one-year fixed will be equivalent to a prime – 0.75% variable.  (Prime – 0.75% is presently an extremely good rate for a variable.)
  2. A 1-year fixed gives you total protection against further rate increases for one whole year. If the BoC hikes again within 12 months (very possible), you’ll instantly save money over a deep-discount variable.
  3. Renewing in one year affords the opportunity to switch into a variable at a potentially better discount than you can get today. (There’s no guarantee, but the chances are pretty good.) That switch can be free of charge depending on the mortgage type, lender and/or the broker you’re dealing with.

So, if you’re hunting for a variable, play the odds and have a peek at today’s 1-year fixed terms instead. Your mortgage planner can provide complete details on either option.


Common Sense Reminder:  Rate predictions are subject to change due to random events. Take the above analyst forecasts for what they’re worth. One-year terms are not suitable for everyone.

  1. The main point is who is giving this rate. Can anybody make clear who is giving this rate and contact information please?
    interested in 1 year fixed with 2.25% , closing very soon.

  2. Hi Everyone,
    I need some help understanding. A couple months ago there were many good arguements for Mr. Carney not to hike on June 1. Since then, things around the world have deteriored even further, bringing Canada down too. Our inflation is dropping every month, job growth has stalled, the stock market has struggled, bond yields have tanked, and most important of all consumer confidence is slowing.
    Can somebody please tell me how another rate hike on Sept 8 is a given? No other country has hiked yet and all of a sudden Canada has 3 coming?
    Moreover, how can you talk about an imminent rate hike on Sept 8 and then 6 months of no action in the same sentence? How is it that our forecasts call for a rate hike right now, but are so good they call for 6 months of nothing.
    It seems to me like the economists are basically just covering there butts. In saying both things, they’re right if there is a hike and if there isn’t. How is this useful to anyone? Might as well flip a coin.
    When I read articles like this I honestly feel dumber because it seems like these economists know something everybody else doesn’t in predicting this further Sept 8 hike. The economic conditions certainly don’t seem to support this, so who does one believe?

  3. Hi David,
    Economists are like interior decorators. Just because they think your living room would look nice in hot pink, you don’t have to agree with them.
    That said, they do have much more forecasting experience than the average Joe. So basing your assumptions on their assumptions isn’t the worst possible decision.
    Best bet: Use what you read as a guide, set your own expectations, and model the outcome accordingly.
    P.S. The BoC sets policy not based on events today, but on anticipated events 12-24 months from now. That is why the odds of Sept. 8 hike are better than 50%. In addition, Canada isn’t the only industrialized nation to start raising rates. Australia, for example, had a big head start on us.

  4. Thanks!
    I have really only been following the economy since I finished school last year, but I guess I’m just frustrated that it seems like they are always right when I can’t seem to understand why as the fundamentals disagree a lot with their predictions.
    However, when you consider how often they change their forecasts to fit changes in current conditions, you realize that they’re most often wrong. The only forecasts that have any meaning are those in the 1 month up to the day before the actual event. So if one is planning a mortgage, which is definitely longer than a 1 month committment, it seems to me it would be better to consider past history of mortgage rates, rather than economists predictions of the future, as the likelihood of them being wrong more than 1 month out is probably 50/50.

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