It's a question thousands of Canadians will face this year when their mortgage comes up for renewal... should I go with a variable or fixed rate mortgage?
There is an expectation the Bank of Canada's interest rate hikes we've seen over the past year or so, may be nearing an end. The strategy behind the Bank's rising interest rates has been to try and curb inflation in the country.
For those who held variable rate mortgages during the past year or so, Access Credit Union President and CEO Larry Davey says they will have been impacted slightly by the increases but notes, their income should have been able to deal with most of it, because they had to qualify for a higher rate at the time they took out their mortgage - a sort of safety net.
Those with 5-year mortgages coming due now, Davey had this to say.
"They were at, probably, high-3s/low-4 percent when they took out their mortgage, and rates right now are a little over five-and-a-half for a five-year mortgage, so that is a bit of a jump. That said, most of those people will have likely seen income increases over the last five years, so there is a lot of, sort of, safety nets there," he explained.
There is also the option of going back to their financial institution and extending the mortgage's amortization.
As for prospective home-buyers, Davey says they need to review their comfort zone.
"Do I feel comfortable going into variable hoping rates might drop and knowing they could still go up? Do I feel comfortable in locking in a five-year knowing that I've probably benefitted with a reduction in the home price over what I would have had to have paid a year ago?" These are just two of the questions Davey suggests prospective home-buyers consider, noting home prices are down slightly in Manitoba.
As for what a potential pause in interest rate hikes could mean for investments, Davey says it always comes back to peoples' comfort level.
"If you're only comfortable with GICs, and you want everything to be one hundred percent guaranteed, then you should be maintaining your money is GICs. If you have a bit of a risk tolerance, you might want to split your money between GICs and the market, or if you have a higher risk tolerance, you could put more money into the market," said Davey.
At the end of the day, if you're dealing with a decent amount of money, Davey suggests connecting with one of Access's financial planners to help determine your risk tolerance.