Before getting a mortgage, homebuyers have to choose a mortgage rate: variable or fixed.
66% of homebuyers opt for fixed mortgage rates. 4% of mortgage rates are a combination or hybrid rate, meaning they have both a variable and fixed component.
There are a number of scenarios that can help you decide between a fixed-rate and a variable-rate mortgage.
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The Bank of Canada (BoC) assesses the state of the economy, based on a number of economic factors from unemployment and export to manufacturing, and adjusts the prime rate accordingly.
When inflation is high, the BoC will likely increase the prime rate to make borrowing money more expensive. Alternatively, when inflation is low, the prime rate is lowered to attract consumers to borrow money and stimulate the economy.
Mortgage lenders set their own discounts or premiums on the prime rate, which is then applied to variable rates, based on their desired market share, competition, strategy, and credit conditions. All of these factors also add to the gap between fixed mortgage rates and bond yields.