As rate cuts begin, many with renewing mortgages ponder variable vs. three-year fixed rates

For homeowners with mortgage renewals coming up in the next few months, the question is whether and how to take advantage of the beginning of interest rate cuts.for the first time in four years on Wednesday and left the door open for more reductions to follow. But many economists believe the downward path of borrowing costs will be gradual, with the central bank possibly pausing for several months between cuts.

Mr. Tran recalled the recent case of a client with a renewal coming up at the end of June whose dilemma encapsulates the quandary many borrowers are facing. The customer was undecided between locking into a competitive three-year fixed rate at 4.95 per cent, or opting for a variable-rate mortgage at 6.2 per cent.

Unsurprisingly, borrowers are largely shunning five-year fixed-rate mortgages, which have long been the default choice for many mortgage shoppers.Frances Hinojosa, CEO and co-founder of Toronto mortgage brokerage Tribe Financial Group, agrees the three-year fixed continues to be an attractive and popular option. But borrowers should be aware that, in an environment of declining interest rates, it typically becomes more expensive to break a fixed-rate mortgage, she said.

“I’ve had a few clients recently reach out to me because they got a renewal notice six months in advance.” And anyone who signed on to a mortgage that required mortgage default insurance – mandatory for down payments of less than 20 per cent – should know that they don’t have to pass the federal stress test to qualify for a renewal with a different lender, Ms. Hinojosa said.

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