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.