A recent report by Rates.ca highlights the financial impact of Bank of Canada rate hikes on those with variable rate mortgages.

Rates.ca analyzed data comparing fixed and variable rate mortgages using a hypothetical scenario of a five-year insured mortgage of $500,000 taken out in July 2021. The fixed rate was 1.99%, while the variable rate stood at 1.25%.

Jump to September 2023, after several rate hikes, and individuals with a variable rate would have paid around 63% more in total interest compared to those with a fixed rate.

To put it differently, homeowners with a variable rate mortgage would have paid a staggering 227% more in interest if rates had not spiked.

Following 10 rate hikes, Rates.ca found that the variable rate path cost $23,579 more in cumulative interest compared to what would’ve been paid if the rate had remained unchanged.

Victor Tran, a mortgage and real estate expert at Rates.ca, expressed that this report sheds light on the average Canadian’s experience with a variable rate mortgage, showcasing unexpected financial burden.

However, Tran emphasized that individuals made the best decision based on the information available at the time, and there’s no blame to assign.

Regarding whether to choose a variable or fixed rate mortgage, Tran advised consulting professionals based on individual circumstances, remaining mindful of outstanding balances, short-term and long-term financial goals.

Eitan Pinsky, owner of Pinsky Mortgages in B.C., pointed out that customers with variable rate mortgages face higher and unpredictable costs. While variable rates could benefit some in the future, Pinsky stressed that it all depends on timing and the long-term strategy.

While fixed rates currently enjoy popularity due to stability and certainty, both Tran and Pinsky urged potential homeowners to consult mortgage professionals and experts to determine the best mortgage path based on their unique situations.