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Why enticements for first-time buyers are failing .

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For the first time since 2018, the Bank of Canada has hiked the overnight interest rate to curb inflation and cool the real-estate market. With increasing interest rates many variable mortgage holders are considering switching to a fixed rate mortgage.

History has shown that central banks usually fall short of their rate hike goals. Variable rates offer more flexibility and lower penalties than fixed rate mortgages. Many borrowers end up breaking their term if they need to re-finance or sell.

The penalty for breaking a variable mortgage is typically three months of interest whereas a more punitive calculation is usually used with a fixed rate.

The main reason for switching to a fixed rate is if you experience anxiety every time the Bank of Canada makes an interest rate announcement. For a five-year fixed rate, 3.3 per cent is still historically low and below current levels of inflation, so if you prefer the peace of mind — the fixed option makes sense.

“Investors are demanding strict capital discipline, while environmental opposition to new fossil fuel projects and the Canadian government’s plans to cap carbon emissions are also deterring growth,” Reuters explained.

“What we’ve seen over the last month or two has definitely been a quite significant outlier in what has been historically a very steady and pretty consistent relationship,” said Shaun Osborne, chief currency strategist at Scotiabank. “We would probably be in a situation here where the Bank [of Canada] would not be pushing back against the idea of a stronger Canadian dollar.”

And while the loonie is expected to ride the crest of higher energy prices for the rest of 2022, this will come about not due to greater investment, but as a result of Canada adjusting its export-import price ratio accordingly, Reuters analysts said.